FRES Fresnillo

                                                                                                         Fresnillo plc

21 Upper Brook Street

London W1K 7PY

United Kingdom

www.fresnilloplc.com

 

30 July 2024

 

Fresnillo plc interim results

for the six months to 30 June 2024

 

 

Octavio Alvídrez, Chief Executive Officer, commented:

 

"I am pleased to report an increase in profitability over the period, driven by a steady production performance combined with careful cost management and higher gold and silver prices. As a result, we are able to confirm an increase in dividends to our shareholders in line with our policy.

 

 

"We remain confident in the outlook. We are on track to meet full year production guidance and we are committed to managing our operations efficiently without compromising on the safety of our people or on continued investment into our longer term growth pipeline."

 

 

 

 

First half highlights

 

Financial highlights (1H24/1H23 comparisons)

·    Adjusted Revenues[1] of US$1,560.2m, up 9.0%; mainly due to higher gold and silver prices, and increased volumes of silver, zinc and lead sold, partly offset by a decreased volume of gold sold.

·    Revenues of US$1,488.3m, up 10.8%.

·    Adjusted production costs[2] of US$844.2m, up 9.1% over 1H23 primarily due to longer haulage distances and deeper mines which increased maintenance costs, contractors and diesel consumption - mainly at Herradura and Fresnillo; the revaluation of the Mexican peso vs. the US dollar; cost inflation; and the higher volumes of ore processed at some of our mines.

·    Cost of sales of US$1,095.9m, up 3.3% mainly as a result of the higher adjusted production costs and increased depreciation, partly mitigated by the positive effect of the variation in change in inventories.

·    Gross profit and EBITDA[3] of US$392.4m and US$544.2m, up 38.8% and 55.1%, respectively.

·    Exploration expenses of US$77.2m, down 20.3% as exploration spend was front-loaded in 1H23.

·    Profit from continuing operations before net finance costs and income tax and profit before income tax of US$235.2m and US$277.8m, up 189.7% and 480.4%, respectively.

·    Profit for the period of US$117.7m, up 31.2% from US$89.7m.

·    Basic and diluted EPS from continuing operations of US$10.7 cents per share, up 21.6%.

·    Adjusted EPS[4] of US$4.4 cents per share, down 57.7% vs. 1H23.

·    Cash generated from operations, before changes in working capital, of US$547.9m, up 69.7%.

·    Free cash flow[5] of US$187.4m in 1H24 (US$18.7m in 1H23).

·    Strong balance sheet with cash and other liquid funds as at 30 June 2024 of US$691.0m (31 December 2023: $889.7m); net debt/EBITDA of 0.17x⁶ (31 December 2023: 0.46x).

·    Interim dividend of 6.40 US cents per share, totaling US$47.2m (1H23: US$10.3m).

 

Operational highlights (1H24/1H23 comparisons)

As disclosed in the 2Q24 production report on 24 July 2024:

·    First half attributable silver production of 28.2 moz (including Silverstream), broadly unchanged vs. 1H23.

·   First half attributable gold production of 270.9 koz, down 16.8% vs. 1H23.

·    Ongoing focus on safety, cost control and productivity.

 

 

Highlights for 1H24

 

US$ million unless stated	H1 24	H1 23	% change
Silver production (koz) *	28,169	28,018	0.5
Gold production (oz)	270,872	325,415	(16.8)
Total revenues	1,488.3	1,343.3	10.8
Adjusted revenues1	1,560.2	1,430.8	9.0
Cost of Sales	1,095.9	1,060.6	3.3
Gross profit	392.4	282.7	38.8
Adjusted production costs2	844.2	773.9	9.1
Exploration expenses	77.2	96.9	20.3
EBITDA3	544.2	351.0	55.0
Profit for the period	117.7	89.7	31.2
Cash generated by operations before changes in working capital	547.9	322.9	69.7
Basic and Diluted EPS (US$)4	0.107	0.088	21.6
Basic and Diluted EPS, excluding post-tax Silverstream revaluation effects (US$)	0.044	0.104	(57.7)
Dividend per ordinary share (US$)	0.064	0.014	357.1

* 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 2024 and H1 2023 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 28.2 moz (including Silverstream) broadly unchanged vs. 1H23 with the higher ore grade and increased volume of ore processed at San Julián Veins, Saucito and Ciénega, and the increased contribution from Juanicipio, offset by the lower production from San Julián DOB and the decreased volume of ore processed and lower ore grade at Fresnillo.

First half gold production of 270.9 koz, down 16.8% vs. 1H23 mainly due to lower ore grade and decreased volume of ore processed at Herradura and the mine closure plan at Noche Buena, partly offset by the increase in volume of ore processed and higher ore grade at San Julián Veins and Ciénega, and higher ore grade at Fresnillo.

First half attributable by-product lead and zinc production up 16.3% and 11.3% vs. 1H23 respectively, mainly due to increased volume of ore processed and higher ore grades at Saucito and Juanicipio, partly offset by the decreased contribution from San Julián DOB.

Our safety indicators improved in 1H24, with the Total Recordable Injury Frequency Rate (TRIFR) and the Lost-time Injury Frequency Rate (LTIFR) decreasing to 7.87 (12.08 in FY 2023) and 5.36 (7.40 in FY 2023) in 1H24, respectively. Though we welcome this performance, we must continue to work hard to ensure the safety of our people across all our operations. To that end, we are sad to report of a fatal incident earlier this year resulting in the tragic loss of one of our colleagues. We continue reinforcing the mechanisms of our 'I Care, We Care' philosophy across our business to instill a true culture of safety, while enhancing leadership practices and improving safety management tools across all our operations.

 

Financial results

Total revenue increased by 10.8% to US$1,488.3 million in 1H24, mainly due to the higher gold and silver prices and increased volumes of silver, zinc and lead sold, partly offset by the decrease in gold ounces sold.

 

The average realised silver price increased 18.5% from US$23.3 per ounce in 1H23 to US$27.6 per ounce in 1H24, while the average realised gold price rose 11.4%, from US$1,948.9 per ounce in 1H23 to US$2,171.9 per ounce in 1H24. The average realised lead by-product price increased to US$96.1 cents per pound, up 2.5% vs 1H23, while the average realised zinc by-product price remained at US$122.4 cents per pound.

Adjusted production costs[6] increased by 9.1% to US$844.2 million in 1H24. The US$70.3 million increase resulted mainly from: i) longer haulage distances and deeper mines which increased maintenance and contractor costs and diesel consumption, mainly at Herradura and Fresnillo (+US$50.0 million); ii) the adverse effect of the 6.1% average revaluation of the Mexican peso vs. the US dollar (+US$30.8 million); iii) underlying cost inflation (1.7%) excluding the revaluation of the Mexican peso vs. US dollar (+US$18.8 million); iv) higher volume of ore processed at some of the mines (+US$26.7 million); and v) others (+US$4.9 million). These adverse effects were mitigated by efficiencies and economies of scale achieved mainly at Saucito, Juanicipio, Ciénega and San Julián veins (-US$60.9 million).

The higher depreciation, primarily of the asset base at San Julián DOB as it approaches the end of its life, and the additional asset base at Juanicipio also contributed to the increase in cost of sales.

These adverse effects were mitigated by the favourable effects of the variation in the change in inventories, and the non-occurrence of unproductive costs in 1H24 vs. the negative effect in 1H23 mainly related to fixed costs incurred during the temporary illegal stoppage at Herradura and Noche Buena.

The factors mentioned above resulted in a 3.3% increase in cost of sales compared with 1H23.

The increase in revenues more than offset the rise in cost of sales, resulting in a 38.8% increase in gross profit to US$392.4 million in 1H24.

Exploration expenses of US$77.2 million for 1H24 decreased 20.3% from the US$96.9 million in 1H23 as the exploration programme was accelerated at both brownfield and greenfield projects in the latter period.

 

In 1H24, net other operating expense of US$4.8 million was recognised in the income statement. This compared favourably to the net other operating expense of US$33.5 million registered in 1H23, mainly driven by the identification of certain suspected illegal extraction of gold ounces from the Soledad-Dipolos leaching pads.

Driven by an increase in gross profit, EBITDA increased by 55.1%, with EBITDA margin rising from 26.1% in 1H23 to 36.6% in 1H24. Similarly, profit from continuing operations before net finance costs and income tax increased from US$81.2 million in 1H23 to US$235.2 million in 1H24.

The total Silverstream effect recorded in the 1H24 income statement was a gain of US$66.5 million (US$21.5 million amortisation profit and US$45.0 million revaluation gain), which compared favourably to the net loss of US$17.0 million registered in 1H23. The positive revaluation was mainly driven by the increase in the forward silver price curve, while the negative revaluation in 1H23 was mainly driven by a reduction in reserves and resources at the Sabinas mine.

The increase in profit from continuing operations, together with the total Silverstream gain, boosted profit from continuing operations before income tax from US$47.9 million in 1H23 to US$277.8 million in 1H24.

Income tax expense for the period was US$89.5 million, compared to the US$19.5 million income tax credit in 1H23. The effective tax rate, excluding the special mining rights, was 32.2% (1H23: -40.7%), which was slightly above the 30% statutory tax rate. This variance resulted from the differences between the tax and the accounting treatment. In 1H24 the main reason was related to the effect of the 8.8% devaluation of the Mexican peso/US dollar spot exchange rate on the tax value of assets and liabilities; which was mitigated by the effect of  the inflation rate (Mexican Consumer Price Index) that impacted the inflationary uplift of the tax base for assets and liabilities and the effect of the devaluation of the Mexican peso on the dollar denominated net monetary position.

Mining rights for the first half of 2024 was US$70.6 million compared to mining rights income of US$22.3 million recognised in 1H23. The reasons for the tax rate in mining rights were the same as the ones affecting income tax.

Profit for the period increased from US$89.7 million in 1H23 to US$117.7 in 1H24, a 31.2% increase half-on-half as a result of the factors described above. Profit due to non-controlling interests was US$39.0 million reflecting the profit generated at Juanicipio, where MAG Silver owns 44% of the outstanding shares. Accordingly, the profit attributable to equity shareholders of the Group was US$78.6 million, a 21.5% increase half-on-half.

Excluding the effects of the Silverstream contract, profit for the year decreased from US$101.6 million to US$71.2 million, a 29.9% decrease.

Cash generated by operations before changes in working capital increased by 69.7% to US$547.9 million, mainly as a result of the higher profit from continuing operations generated in the year.

Capital expenditure in 1H24 totalled US$170.3 million, a 25.2% decrease over 1H23. 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$71.4 million (US$192.8 million in 1H23), repayments of loans by minority shareholders of US$43.3 million (capital contribution and loans granted by minority shareholders US$25.0 million in 1H23), and dividends paid of US$31.0 million (US$98.0 million in 1H23).

Fresnillo plc continued to maintain a solid financial position during the period with cash and cash equivalents of US$691.0 million as of 30 June 2024, increasing 29.3% versus 31 December 2023 and decreasing 22.3% versus 30 June 2023 following the repayment of the outstanding 5.5% Senior Notes due in November 2023. Taking into account the cash and cash equivalents of US$691.0 million and the US$839.2 million outstanding Senior Notes, Fresnillo plc's net debt is US$148.2 million as at 30 June 2024. This compares to the net debt position of US$304.4 million as at 31 December 2023. Considering these variations, the balance sheet at 30 June 2024 remains strong, with a net debt / EBITDA ratio of 0.17x[7]

 

Creation of the Business Development executive role and appointment of new Business  Development Vice President

 

Fresnillo is pleased to announce the creation of a new executive role for its development and growth: Vice President of Business Development. This new executive role will be part of the Executive Committee (ExCo), together with Octavio Alvídrez (Chief Executive Officer), Mario Arreguín (Chief Financial Officer), Guillermo Gastelum (Vice President of Exploration), Tomás Iturriaga (Chief Operating Officer Central) and Daniel Diez (Chief Operating Officer North). The Company is transferring Marcelo Ramos, who held the role of Vice President of Business Development at Baluarte Minero (part of Peñoles), to Fresnillo plc with effect from 30 July 2024. Mr Ramos has more than 20 years of international metals and mining sector experience across different commodities such as gold and base metals, primarily leading M&A across different regions including North America, South America, Australia and Asia. Prior to working in Peñoles, he was Vice President of Business Development of Oceana Gold Corporation in Colorado US. Mr Ramos has a Bachelor degree of Industrial Engineering from the Universidade Federal do Rio de Janeiro, and an MBA from the Alliance Manchester Business School.

 

 

Interim Dividend

 

The Board of Directors has declared an interim dividend of 6.40 US cents per Ordinary Share totalling US$47.2 million, which will be paid on 17 September 2024 to shareholders on the register on 9 August 2024. The dividend will be paid in UK pounds sterling unless shareholders elect to be paid in US dollars. This interim dividend is higher than the previous period due to the increase in profit in 1H24, 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 2024 interim dividend will be subject to this withholding obligation.

 

Outlook

2024 guidance remains unchanged. Attributable silver production expected to be in the range of 55.0 to 62.0 moz (including Silverstream) while attributable gold production is expected to be in the range of 580 to 630 koz. Expressed in silver equivalent ounces[8], production is expected to be 101 -112 million ounces.

Exploration expenses for 2024 has been slightly decreased and are expected to be c. US$170 million.

Capex for 2024 has been reviewed from US$440 million to US$410 million.

Analyst Presentation

Fresnillo plc will be hosting a webcast presentation for analysts and investors today at 9:00am (GMT). A link to the webcast will be made available on Fresnillo's homepage: www.fresnilloplc.com or can be accessed directly here:

https://www.lsegissuerservices.com/spark/Fresnillo/events/adf8b940-c38c-424b-8655-05cf79b9bfa4

Event registration: https://registrations.events/direct/LON563350

 

For further information, please visit our website: www.fresnilloplc.com or contact:

 

Fresnillo plc
London Office Gabriela Mayor, Head of Investor Relations Mark Mochalski	Tel: +44(0)20 7339 2470
Mexico City Office Ana Belém Zárate	Tel: +52 55 52 79 3206
Powerscourt Peter Ogden	Tel: +44(0)20 7250 1446

 

 

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-Dipolos¹, Noche Buena² 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.

² Mineral extraction concluded in May 2023, however leaching of gold content inventories at the leaching pads continues.

 

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.

 

 

H1 2024 Operational Review

 

Production

 

Production	H1 2024	H1 2023	%  change
Silver (koz)	27,155	26,472	2.6
Silverstream prod'n (koz)	1,014	1,546	(34.4)
Total Silver prod'n (koz)	28,169	28,018	0.5
Gold  (oz)	270,872	325,415	(16.8)
Lead  (t)	31,830	27,363	16.3
Zinc  (t)	55,397	49,788	11.3

 

First half attributable silver production of 28.2 moz (including Silverstream) broadly unchanged vs. 1H23 with the higher ore grade and increased volume of ore processed at San Julián Veins, Saucito and Ciénega, and the increased contribution from Juanicipio, offset by the lower production from San Julián DOB and the decreased volume of ore processed and lower ore grade at Fresnillo.

First half gold production of 270.9 koz, down 16.8% vs. 1H23 mainly due to lower ore grade and decreased volume of ore processed at Herradura and the mine closure plan at Noche Buena, partly offset by the increase in volume of ore processed and higher ore grade at San Julián Veins and Ciénega, and higher ore grade at Fresnillo.

 

First half attributable by-product lead and zinc production up 16.3% and 11.3% vs. 1H23 respectively, mainly due to increased volume of ore processed and higher ore grades at Saucito and Juanicipio, partly offset by the decreased contribution from San Julián DOB.

 

Fresnillo mine production

 

	H1 2024	H1 2023	%  change
Ore Processed (t)	1,211,992	1,336,142	(9.3)
Production
Silver (koz)	5,259	6,789	(22.5)
Gold  (oz)	23,155	19,747	17.3
Lead (t)	12,625	10,972	15.1
Zinc (t)	22,928	22,790	0.6
Ore Grades
Silver (g/t)	151	177	(14.7)
Gold (g/t)	0.80	0.64	25.0
Lead (%)	1.21	0.96	26.0
Zinc (%)	2.59	2.27	14.1

 

 

First half silver production decreased 22.5% vs. 1H23 mainly driven by the higher proportion of volumes extracted from the western areas of the mine with lower silver ore grade but higher gold and base metal contents. The decrease in volumes of ore processed was explained by: i) lower availability of ore to feed the beneficiation plant as ore was hauled via ramps while the two sections of the deepened San Carlos shaft are connected; ii) poor ground conditions in some areas which required additional ground support adding to the mining cycle time; and iii) narrower veins than anticipated in the mine plan. The lower ore grade was mainly due to: i) delays in development; ii) the narrower veins with high silver content, and iii) variations with the geological model.

 

Orders for additional in-mine equipment, fit for narrower veins, have been placed, while additional bolting equipment arrived on site at the beginning of June and will contribute to a more expeditious preparation of new stopes.

 

Mine development rates remained broadly stable half on half at an average of 3,109m per month in 1H24 (1H23: 3,197m per month).

 

First half by-product gold production increased 17.3% vs. 1H23 primarily driven by the higher ore grade, partially offset by the decreased volume of ore processed.

 

Silver ore grade in 2024 is expected to be in the range of 160 to 180 g/t, while the gold ore grade is estimated to be between 0.70 to 0.80 g/t.

 

The commissioning of the San Carlos shaft has been delayed to 2H24 as the installation of the cables to connect the two sections of the shaft will be concluded in 3Q24. This project is expected to support a reduction in haulage costs.

 

 

Saucito mine production

 

	H1 2024	H1 2023	% change
Ore Processed (t)	1,174,570	1,034,921	13.5
Production
Silver (koz)	6,811	5,811	17.2
Gold  (oz)	37,658	40,080	(6.0)
Lead (t)	10,566	8,251	28.1
Zinc (t)	15,603	12,993	20.1
Ore Grades
Silver (g/t)	203	197	3.0
Gold (g/t)	1.29	1.52	(15.1)
Lead (%)	1.05	0.95	10.5
Zinc (%)	1.72	1.65	4.2

 

 

First half silver production increased by 17.2% vs. 1H23, primarily due to the higher ore grade, and increased volume of ore processed driven by the increased productivity and availability of equipment.

 

First half by-product gold production decreased 6.0% vs. 1H23, primarily due to the lower ore grade, partially mitigated by the higher volume of ore processed.

 

Full year 2023 silver ore grade is expected to be in the range of 210-220 g/t, while the gold ore grade is estimated to be between 1.10-1.30 g/t.

 

 

 

PYRITES PLANT

 

	H1 2024*	H1 2023*	% change
Pyrite Concentrates Processed (t)	76,421	67,243	13.6
Production
Silver (koz)	846	307	175.6
Gold  (oz)	1,339	764	75.3
Ore Grades
Silver (g/t)	539	207	160.4
Gold (g/t)	2.19	1.59	37.7

* Includes concentrates of Fe from Saucito and Fresnillo.

 

Juanicipio - Attributable

 

	H1 2024	H1 2023*	% change
Ore Processed (t)	370,875	335,855	10.4
Production
Silver (koz)	5,280	4,214	25.3
Gold  (oz)	10,744	9,351	14.9
Lead (t)	4,741	2,718	74.4
Zinc (t)	8,510	4,309	97.5
Ore Grades
Silver (g/t)	488	448	8.9
Gold (g/t)	1.26	1.18	6.8
Lead (%)	1.46	0.94	55.3
Zinc (%)	2.74	1.74	57.5

* 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.

 

Attributable first half silver and gold production increased significantly vs. 1H23 as commissioning of the flotation plant concluded in 1Q23 and it was fully ramped up by 3Q23.

 

The silver ore grade for 2024 has been reviewed and is expected to be in the range of 420-460 g/t.

 

 

Ciénega mine production

 

	H1 2024	H1 2023	% change
Ore Processed (t)	519,542	501,401	3.6
Production
Gold  (oz)	20,668	17,434	18.5
Silver (koz)	2,581	1,991	29.6
Lead (t)	1,634	1,504	8.6
Zinc (t)	1,644	1,921	(14.4)
Ore Grades
Gold (g/t)	1.34	1.18	13.6
Silver (g/t)	179	144	24.3
Lead (%)	0.48	0.47	2.1
Zinc (%)	0.59	0.72	(18.1)

 

First half gold and silver production increased 18.5% and 29.6% vs. 1H23 due to the higher ore grade grade at the Jessica Transversal and Taspana Sur areas and, to a lesser extent, increased dilution control at the Virgen and Virginias areas. The increased volume of ore processed was driven by the contribution from the Taspana area and the timely preparation of stopes.

The gold and silver ore grades for 2024 are estimated to be in the ranges of 1.1-1.3 g/t and 160-180 g/t respectively.

 

San Julián mine production

 

	H1 2024	H1 2023	% change
Ore Processed Veins (t)	592,646	558,257	6.1
Ore Processed DOB(t)	960,227	1,050,158	(8.6)
Total production at San Julián
Gold (oz)	25,428	22,292	14.1
Silver (koz)	6,156	7,008	(12.2)
Production Veins
Gold (oz)	24,326	20,464	18.9
Silver (koz)	4,061	2,480	63.8
Production DOB
Gold (oz)	1,102	1,828	(39.7)
Silver (koz)	2,096	4,528	(53.7)
Lead (t)	2,264	3,917	(42.2)
Zinc (t)	6,713	7,775	(13.7)
Ore Grades Veins
Gold (g/t)	1.35	1.20	12.7
Silver (g/t)	234	152	53.8
Ore Grades DOB
Gold (g/t)	0.06	0.09	(33.3)
Silver (g/t)	81	156	(48.1)
Lead (%)	0.32	0.48	(33.3)
Zinc (%)	0.95	0.99	(4.0)

 

San Julián Veins

First half silver and gold production increased vs. 1H23 mainly due to the higher ore grades at the San Antonio, La Dura and Eliza veins, and the increased volume of ore processed.

Silver and gold ore grades were reviewed, and through an optimised mine sequence, are expected to be in the ranges of 200-220 g/t and 1.20-1.40 g/t, respectively.

 

San Julián Disseminated Ore Body

First half silver production decreased vs. 1H23 as a result of the gradual decrease in production at this mine, with mining activities expected to conclude in 3Q24.

We expect the 2024 silver ore grade to be around 70g/t.

 

Herradura mine production

 

	H1 2024	H1 2023	% change
Ore Processed (t)	10,451,639	11,705,553	(10.7)
Total Volume Hauled (t)	49,234,362	50,669,525	(2.8)
Production
Gold (oz)	141,686	189,869	(25.4)
Silver (koz)	219	344	(36.3)
Ore Grades
Gold (g/t)	0.63	0.74	(14.9)
Silver (g/t)	1.18	1.55	(23.9)

 

Half year gold production decreased 25.4% vs. 1H23 primarily due to the lower ore grade. This was due to heavy rain, which delayed access to higher grade oxidised ore areas. As a result, the mine plan was changed and a greater proportion of sulphide ore was deposited on the leaching pads and processed, impacting both ore grade and recovery rates.

Gold production was also affected by the lower volume of ore processed in 1H24, albeit in accordance with the mine plan.

The gold ore grade in 2024 is expected to be in the range of 0.60-0.70 g/t.

 

Noche Buena mine production

 

First half gold production totalled 10,452 ounces. As previously announced, mining activities concluded in May 2023, and the closure plan continues as expected.

 

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 2024 approved capex and exploration budget.

 

Advanced exploration projects

 

Rodeo

Rodeo is an open pit, heap leaching gold project located in central Durango state. 1.2 million ounces of gold occur in a volcanic rock-hosted disseminated ore body showing thorough oxidation down to depths exceeding 200 metres. Good metallurgical recoveries have been obtained from ores coming from a projected low strip ratio open pit. During 1H24 negotiations for land access with local communities yielded positive results, having reached preliminary agreements which are being formalised through contracts. It is expected that exploration will resume in 2H24; the drilling programme will be focused in increasing the resources in the main pit area and in obtaining samples for detailed metallurgical test work. Nearby disseminated gold showings will be drill-tested as well. Updates of the mineral resource estimation and preliminary economic assessment will follow. Other studies in progress include the evaluation of alternatives for road access and water and energy supply, preliminary engineering of the projected open pit and processing facilities, and minor adjustments to the district-reaching community engagement programme in place.

 

Orisyvo

Orisyvo is a world-class, high-sulphidation epithermal, disseminated gold deposit located in the Sierra Madre mountains of Chihuahua state, hosting open-pit constrained total resources of 9.6 million ounces of gold. The project is in the pre-feasibility stage aiming at the development of an underground operation and associated infrastructure, which includes mineral processing and tailings storage facilities. Good progress was attained during 1H24, with studies focusing on the optimisation of the expected capital expenditure, operating costs, and metallurgical recoveries through the evaluation of state-of-the-art technologies, which have delivered promising results. The land acquisition strategy and the evaluation of road access and water and energy supply options is progressing as scheduled. Results of the pre-feasibility studies are expected in 2H24.

Simultaneously, a region-wide community and local government engagement programme focused in several initiatives on educational, health, environmental care and entrepreneurship topics suggested by local stakeholders continues to operate, in preparation for the required indigenous consultation processes.

 

Tajitos

Tajitos is a low strip ratio open-pit, heap-leach, disseminated gold project located in the Herradura Corridor of northwestern Sonora state. In 1H24, 10,524 metres of core and reverse circulation drilling were completed in the main resource area, including 2,948 metres of PQ diameter holes designed for metallurgical investigations on columns. Additional gold recovery studies were completed in mineralised rocks coming from surface and from historical core available, both giving encouraging results. It is expected that the full evaluation of the main resource area will be completed in 2H24, to be followed by the update of the mineral resources and the preliminary economic assessment. Drilling has started in the western, underexplored sector of the project, delivering interesting gold-bearing intervals worth following-up.

Environmental studies associated with the potential development of this project have started, and a community relations programme is ongoing in the region surrounding the project, including the Caborca municipality.

 

Guanajuato

Guanajuato is a historic, world-class gold and silver epithermal vein field stretching more than 40 kilometres along the central Mexican state of Guanajuato. 40,759 metres or core drilling were completed during 1H24 on two areas: (i) the historic, central part of the project, which includes the Torres, Peregrina, and San Gregorio areas, and (ii) the emerging southern area where a significant discovery of silver-rich veins has been made. Focus has been on the latter, since a preliminary conceptual study showed good economic potential for its development. Step-out drilling, metallurgical investigations, environmental permitting, and community engagement are the main ongoing activities in this project.

 

Exploration

Exploration drilling meterage completed by Fresnillo plc during 1H24 amounted to 391,301 metres, 86% of which was devoted to brownfields targets. The focus of the mine exploration teams continues to be infill drilling to: (i) improve the certainty of reserves for short and medium-term mine planning; and (ii) upgrade the resources category from inferred to indicated, to foster reserve replenishment. Brownfields exploration is also carried out by the Exploration Division, devoting 62% of its drilling metres of the period to the evaluation of targets around the Fresnillo and San Julián districts and to the Tajitos and Central Guanajuato projects.

Greenfield exploration in Mexico includes resuming drilling in 2H24 at Lucerito and Candameña, where detailed technical and logistical preparation is ongoing. Drilling is also scheduled for this period at Capricornio and Pencahue in Chile. In Peru, regional community engagement plans are advancing at Supaypacha, Santo Domingo and Chiclayo, aiming at drill-testing several high exploration potential targets in 2025.

Evaluation of Fresnillo properties in Mexico, Peru, and Chile is advancing to continue strengthening and optimising our portfolio, in compliance with our strategic long term view of consolidating districts.

In the first six months, US$77.0 million of exploration expenses were recorded in the income statement, a decrease of 20.5% over 1H23. Total risk capital budgeted in exploration for the full year 2024 was reviewed and decreased to approximately US$175 million (including US$5 million capitalised).

 

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.

 

 

Sustainability performance

 

Our Purpose to "Contribute to the wellbeing of people through the sustainable mining of silver and gold" underscores the importance of integrating responsible business practices deeply into our business model and considering factors that affect our stakeholders at every critical decision-making level.

Ethics

 

As a Company, we hold ourselves to the highest ethical standards and believe that our actions and behaviour should always reflect our corporate values: Confidence, Responsibility and Respect, Integrity and Loyalty (CRIL).

 

We launched this period's Ethics and Integrity Training Programme, focusing on high-risk areas like procurement, contract management, and project management. It covers topics such as Anti-bribery and Corruption, Conflict of interest, Harassment and Fraud prevention, the Whistleblowing mechanism, and Regulatory compliance. The annual programme also contemplates in person sessions in the second half of the year.

 

The Behaviour Commissioners continue to handle cases related to the Harassment Prevention Programme across our mining units. Additionally, we've increased the participation of Commission members by integrating more union representatives in all operating units. We also expect to issue an updated version of the Harassment Prevention Protocol, incorporating experiences and lessons learnt since its 2020 original issuance.

 

In other aspects of our Compliance Programme, we have made significant strides in key areas. We successfully implemented a new software to automate and optimise the third-party due diligence process, followed by comprehensive staff training, resulting in improved response times and decision-making. Additionally, we meticulously documented the processes, roles, and responsibilities of key personnel and are closely monitoring regulatory compliance in critical infrastructure and activities. Meanwhile, we continue to develop the cybersecurity governance framework, ensuring robust protection and management of our digital assets.

People

 

Our workforce is vital to achieve our organisational purpose. Our goal is to cultivate an inclusive culture where diversity is valued, and all employees feel respected and empowered to reach their full potential.

 

We have continued to increase the participation of women in our workforce. The percentage of unionised and non-unionised women reached 14.38% (13.86% in 2023) while our overall total workforce, including contractors, reached 12.36% (11.88% in 2023). We expect to maintain this upward trend and make progress in both of our gender targets by 2025: 12% of women in our workforce and 8% women in managerial roles. Finally, we continue our commitment with workforce transparency, through our annual submission to the Workforce Disclosure Initiative survey, now housed at the Thomson Reuters Foundation.

 

Table 1. Workforce composition

 

	As at June 30, 2024	As at December 31, 2023	% Change
Unionised employees	5,638	5,680	-0.74
Non-unionised employees	1,593	1,580	0.82
Total unionised and non-unionised employees	7,231	7,260	-0.40
Unionised and non-unionised women (%)	14.38	13.86	-
Contractors	11,834	12,516	-5.45
Total workforce	19,065	19,776	-3.60
Total women (%)	12.36	11.88	-

 

 

We aim to attract, develop, and retain top talent, ensuring long-term engagement with our workforce. We promote leadership development programmes and actively collaborate with unions to foster trust through ongoing dialogue. During the period, as part of the attract component of our strategy, we received Earth Sciences residents across all our business units, as well as the continuation of our dual professional internship training programme in partnership with the National Polytechnic Institute (IPN), Zacatecas Campus. As part of the develop component of our strategy, we also launched the inaugural Effective Supervision Diploma for the maintenance personnel of our Fresnillo unit, to develop both technical and soft competencies that equip them to lead their teams effectively. We expect to extend this programme to all other units within the Company.

 

Table 2. Turnover

 

	As at June 30, 2024	As at June 30, 2023
Voluntary turnover (%)	4.02	5.10
Total turnover (%)	6.53	12.36

 

Safety

 

Safety is a fundamental value at Fresnillo. We prioritise our workforce's wellbeing by embodying a profound love for life through the daily practice of our 'I Care, We Care' philosophy. With prevention at the heart of our strategy, our target is to eliminate fatal accidents, minimise exposure to risk, avoid harm to people and damage to assets.

 

From 2018 to June 2024, we have achieved a 62% decrease in Total Recordable Injury Frequency Rates (TRIFR), and a 38% decrease in Lost Time Injury Frequency Rates (LTIFR) per million hours worked. Our performance results to the first half of the year show a decrease as well compared to the previous reporting period: a 7.87 TRIFR (12.08 in 2023) and a 5.36 LTIFR (7.40 in 2023). Despite these favourable results, it is with deep sorrow that we inform of the tragic loss of one of our colleagues earlier in the year.

 

Table 3. TRIFR and LTIFR performance*

 

	As at June 30, 2024	As at December 31, 2023	% Change
Total Recordable Injury Frequency Rates (TRIFR)	7.87	12.08	-34.85
Lost Time Injury Frequency Rates (LTIFR)	5.36	7.40	-27.57

 

     * Frequencies for every 1,000,000 hours worked

 

Recognising that behavioural change is a key element to the success of our safety journey, the Company is actively dedicating significant time and resources to foster a disciplined application of controls, enhance leadership qualities, and improve accountability processes at every level of the organisation. Since the last quarter of 2023, and throughout 2024, we've implemented the following actions, contributing considerably to the period's performance:

 

•             Matured the 'I Care, We Care' Operational Committee focusing on building, empowering, and leading safe operations as the ideal way to do business and ensure the wellbeing of our people.

•             Initiated a programme to develop technical and safety management standards with the participation of multidisciplinary teams, including safety personnel.

•             Implemented a communication strategy to support the integration and positioning of our 'I Care, We Care' philosophy into daily operations, and as a core business identity.

•             Started quality verification of leadership practices (Coaching Mode), piloted the quality verification of the Hazard Identification and Risk Assessment (IPER) mechanism (Coaching Mode) and accident investigation quality evaluations (desktop and field evaluations).

•             Launched the 'Safety Leadership Survey' to assess the perception on the field of our safety strategy among mid-level managers and business partners. Results will be used to foster initiatives that continue contributing to maturing our safety culture.

•             Strengthened the accountability processes for leadership roles (executive and managerial levels), including business partners, through field support and performance evaluations.

•             Expanded the top critical risks from 5 to 10 in all our business units and advanced the performance standard evaluations for the initial top 5, updating the risk portfolio as part of the 'Learning Environment' strategic line.

•             Improved the analysis of preventive reporting with a detailed drill-down approach for deeper insights and effective direction of efforts.

•             Updated and launched the version 2.0 of the HSECR Suite software, considering feedback from multiple teams across different sites, part of the continuous improvement for leadership practices and safety management tools at all command levels.

•             Progressed in forming permanent emergency brigades in each mining unit and in their training programmes as well. The purpose is to establish best practices, even above legal requirements.

 

We strive to achieve our aspirational goal of zero harm by continuously reinforcing, renewing, and improving the management processes and mechanisms of our 'I Care, We Care' philosophy. This approach demonstrates our commitment to safe operations, fosters a mature preventive safety culture, and ensures the wellbeing of our workers.

Health

 

Our foremost commitment is to safeguard the wellbeing of our people by ensuring a safe and healthy work environment.

 

In recent years, our health strategy has expanded beyond occupational health programmes, defining five lines of action to ensure a healthier, safer, and more productive workplace for all our employees: 1) Health Surveillance, 2) Integral Wellbeing, 3) Industrial Care, 4) Development and Innovation, and 5) Emergency Preparedness.

 

We aim to pre-emptively identify and manage the health risks to which our workforce is exposed. Thus, industrial hygiene and ergonomics were introduced to the 'I Care, We Care' Operational Committee and three initiatives of the 2024-2025 action plan have begun deployment, including ergonomic stairs in haulage trucks at Penmont, comprehensive temperature control programme at Fresnillo and active breaks for the prevention of musculoskeletal injuries at Ciénega. While our health teams primarily focus on prevention, emergency response remains a core competency, with 50 workers currently undergoing their First Aid Technician training.

 

Preventive care and the promotion of healthier lifestyles can limit certain chronic diseases and enhance overall wellness and fitness for work. Consequently, we continue to address both physical and mental health, promoting nutrition, sports, and healthy lifestyle habits. During the period, we pursued the 'Fit Challenge', with 1,010 employees enrolled, and sports tournaments, featuring over 80 football, basketball, volleyball, and baseball teams.

 

We continue working towards the 'Safe and Healthy Workplace Environments' certification of all our business units by the Mexican Institute of Social Security (IMSS), a voluntary programme to implement strategies and measures to improve health, safety, and wellbeing of workers, as well as productivity and quality in the workplace. During this period, we achieved the recertification of Herradura and Fresnillo mining units.

 

Finally, we obtained the 'Exceptional Enterprises' award for our initiative 'I Care, We Care in Health', in recognition of the commitment to our workforce and value creation, by the Institute for the Promotion of Quality (IFC).

 

Environment

 

We optimise resource use to curb our impacts and are accountable for our environmental footprint. We are also committed to implementing effective measures to safeguard biodiversity and ensure that it is not adversely affected by our operations.

 

To pursue these ambitions and achieve operational efficiency, we launched a project in Ciénega to repurpose auxiliary treated wastewater discharges for mine services, thereby reducing mine water consumption. Additionally, we continued with the mine water substitution project at the Fresnillo District, considerably increasing Saucito's share of municipal treated wastewater consumption. Finally, we initiated a new project in Herradura's maintenance department to treat the oil skimmer pond with bacteria, aiming to reduce contaminated soil.

 

We have considerably increased our renewable electricity consumption from 53% in 2023 to over 70% in the first half of the period, closing the gap to our goal of 75% by 2030. We also initiated a formal process of energy consumption forecasting aligned to our Strategic Plan base case.

 

During the period, we have conducted remediation activities, such as species relocation and reforestation campaigns. We also held annual environmental fairs across our mining units in commemoration of the World Environment Day, World Water Day, and World Recycling Day. These events included conferences, recycling campaigns, reforestation, and clean-up activities, among others, organised in collaboration with volunteers from our workforce, communities and business partners. These experiences help instil an environmentally conscious culture across our Company.

 

Tailings Storage Facilities

 

We implement best governance and engineering practices to manage our Tailings Storage Facilities (TSFs) to fulfil our goal of protecting local communities and the environment by managing waste responsibly.

 

During the first half of the year, relevant activities have been carried out in tailings management. The implementation of the Tailings Management System continued to progress, completing the Dam Safety Review (DSR) and Dam Breach Analysis (DBA) for Herradura's TSF.

 

In the Fresnillo mine, the original design of the San Carlos TSF was optimised to extend its useful life. In San Julián, the completion of the TSF's Phase 3 construction was finalised, including reinforcement of the containment berm, meeting international best practices standards, such as the guideline of the Mining Association of Canada (MAC), the International Commission on Large Dams (ICOLD) and the Canadian Dam Association (CDA).

 

Community Relations

 

Our community strategy encompasses all phases of the mining lifecycle. Recognising the strategic importance of going beyond our social license to operate, we aim to earn and maintain community trust through accountability, meaningful engagement, and support for their key concerns. By working collaboratively, we ensure that we develop and grow together.

 

During the period, we have implemented the 'Exploring to Understand' programme, whose objective is to create social ambassadors from each mining unit to build stronger relationships with the communities where we operate, as well as the 'Social Challenges in Mining' sensitisation workshops for our business partners, to build Human Rights and behavioural awareness. We also have strengthened ties with the communitarian committees we have become a part of, seeking to consolidate high impact projects.

 

Aligned with the UN Sustainable Development Goals, we continue to build a robust portfolio of social investments through strategic alliances with civil society and the three tiers of government. We focus specifically on four pillars of action: 1) Quality Education, 2) Good Health and Wellbeing, 3) Clean Water and Sanitation, and 4) Decent Work and Economic Growth.

 

1.    Sustainable Development Goal 3: Good Health and Wellbeing

 

During the period, we continued providing medical appointments to communities across our mining sites. Additionally, we carried out the Community Health Weeks in partnership with the UNAM Foundation and local health authorities in Ciénega, San Julián and the Fresnillo District, benefitting over 4,000 people with dental care, ophthalmology, physical therapy, and general medical appointments.

 

We have continued the Leaders on the Horizon programme with FutbolMas to foster community development through sports, promoting peace, resilience, and social engagement. During this period, we held its second edition in Herradura, featuring training workshops for adults and youths to become sports leaders and benefit children in their communities. Similarly, in Guanajuato Centro, we organised a socio-sports league involving community parents, to strengthen social cohesion. In the Fresnillo District, we also begun renovating the Fresnillo Sports Unit to promote sports, wellbeing, and community interaction. Additionally, efforts are underway to establish a basketball academy at 'El Nacional,' along with ongoing efforts on the baseball academy, tennis club, and the Santos-Fresnillo football academy in both the Fresnillo District and Herradura. Finally, we conducted workshops in communities near Juanicipio on vocational guidance, school bullying, and mental health.

 

2.   Sustainable Development Goal 6: Clean Water and Sanitation

 

We have continued to strengthen alliances with civil society and the government, successfully rehabilitating the 15 de Septiembre community water well through a tripartite collaboration between Herradura, the municipal government, and the community. Additionally, through the San Julián community committee, in partnership with AC FORMAC and the support of the Chihuahua state government, work continues to consolidate the community's collective water system. In Saucito, we are assisting local authorities in securing a new well to replace the current one. We also participate in the Ciénega de Nuestra Señora water committee, driving an infrastructure project that anticipates significant financial contributions from the state government.

 

3.   Sustainable Development Goal 4: Quality Education

 

In partnership with the Zacatecas and Sonora education ministries and INNOVEC, the 'PREST MATH' programme was launched to enhance math skills among primary school children in Fresnillo and Herradura communities, with plans to expand it to San Julián. The 'Picando Letras' programme continues in Herradura, Juanicipio, Saucito, and Ciénega, promoting reading activities in local schools and implementing the 'Tools for Peacebuilding' module to reduce stress among children and youth in violent environments. Finally, we resumed the Larousse Books programme, focused on subjects that support learning at school.

 

We continue to sponsor teams for the 'FIRST Robotics' competition at the Laguna Regional FIRST, supporting a total of six teams. This year, two of them received awards and both competed in the World Championship in Houston, Texas, one of them achieving the 'Spirit Award'. Moreover, the 'LaSalle Excellence Scholarship' Programme has evolved to increase the campuses we have collaboration agreements with, aiming to allow the top students of our FIRST teams to benefit from a full undergraduate scholarship in their home states. During this period, we also saw the graduation of two students from this programme, originating from neighbouring communities to Herradura and Ciénega.

 

4.   Sustainable Development Goal 8: Decent Work and Economic Growth

 

We continue to strengthen partnerships with NGOs, civil associations, and different tiers of government and have standardised the process for entrepreneurial project promotion in our communities. In the Fresnillo District, partnering with the Rural Development Education Brigade 46 and the municipal DIF, we continued deploying programmes aimed at developing skills for entrepreneurs, and in collaboration with Pro Empleo, we seek to consolidate at least one enterprise from each of our mines by the second half of the year.