Fresnillo PLC (LON:FRES) has announced its fourth quarter production report.
Octavio Alvídrez, Chief Executive Officer, said:
“We achieved our full year guidance of 105.1 million silver equivalent ounces. Notably gold, lead and zinc production were within our guided ranges. Silver production was up 4.7% year on year driven by the ramp up at Juanicipio and higher ore grade at San Julián Veins, albeit it was slightly below expectations.
“This year we overcame many operational challenges, which is a testament to the strong and determined teams we have across our sites. We successfully ramped up production at our new mine, Juanicipio, reaching full nameplate capacity.
“We continued to see the impact of inflation and the revaluation of the Mexican peso affecting costs across the business.
“Our priorities for 2024 are clear. Safety is key and we will continue working hard to instill a true culture of safety across our operations. We will continue to identify cost reduction initiatives to address inflation, while we will also focus on efficiencies across all our mines.”
HIGHLIGHTS
Silver
· Full year attributable silver production of 56.3 moz (including Silverstream) increased 4.7% vs. FY22, as a result of the ramp-up at Juanicipio and higher ore grade at San Julián Veins, partly offset by the lower ore grade at San Julián (DOB) and Fresnillo.
· Quarterly attributable silver production of 14.2 moz (including Silverstream) remained at a similar level to 3Q23, as the increased production driven by the higher ore grade and increase in volumes of ore processed at Saucito and the higher ore grade at San Julián Veins was offset by the decreased volume of ore processed and lower ore grade at Fresnillo and the lower ore grade at San Julián (DOB).
· Quarterly attributable silver production (including Silverstream) increased 13.1% vs. 4Q22, primarily due to the ramp-up at Juanicipio, the higher ore grade at San Julián Veins and a higher volume of ore processed at Saucito, partially offset by the lower ore grade at Fresnillo and San Julián (DOB).
Gold
· Full year attributable gold production of 610.6 koz, down 4.0% vs. FY22 mainly driven by the decrease in gold production at Noche Buena as it approached the end of its mine life, partially mitigated by the ramp up at Juanicipio and the higher ore grade at Herradura.
· Quarterly attributable gold production of 152.6 koz up 15.1% vs. 3Q23, mainly driven by the higher volume of ore processed and ore grade at Herradura.
· Quarterly attributable gold production down 9.1% vs. 4Q22 primarily due to the decrease in the volume of ore processed at Herradura and the mine closure plan at Noche Buena, partly mitigated by the ramp-up at Juanicipio.
By-Products
• Full year attributable by-product lead production increased 9.2% vs. FY22 due to a greater contribution from Juanicipio and higher volume of ore processed and ore grade at Saucito partly offset by the decreased production at Ciénega.
• Full year attributable by-product zinc production increased 8.6% vs. FY22 due to the increased production from Juanicipio and the higher volume of ore processed and ore grade at Saucito partly offset by the lower ore grade at San Julián (DOB).
• Quarterly attributable by-product lead production up 9.1% vs. 3Q23 primarily due to the higher ore grade and increased volume of ore processed at Saucito.
• Quarterly attributable by-product lead and zinc production up 24.6% and 25.1% vs. 4Q22 respectively, mainly due to the higher ore grades and increase in volumes of ore processed at Saucito and the ramp-up at Juanicipio, partially offset by the lower ore grades at San Julián (DOB) and Ciénega.
| 4Q23 | 3Q23 | % Change | 4Q22 | % Change | FY23 | FY22 | % Change | |
| Silver (koz) | 13,548 | 13,434 | 0.9 | 12,073 | 12.2 | 53,454 | 51,052 | 4.7 |
| Silverstream (koz) | 612 | 670 | (8.6) | 450 | 36.2 | 2,828 | 2,688 | 5.2 |
| Total Silver (koz) | 14,161 | 14,104 | 0.4 | 12,522 | 13.1 | 56,282 | 53,740 | 4.7 |
| Gold (oz) | 152,605 | 132,627 | 15.1 | 167,969 | (9.1) | 610,646 | 635,926 | (4.0) |
| Lead (t) | 15,895 | 14,575 | 9.1 | 12,756 | 24.6 | 57,833 | 52,950 | 9.2 |
| Zinc (t) | 28,844 | 29,073 | (0.8) | 23,060 | 25.1 | 107,705 | 99,153 | 8.6 |
SAFETY PERFORMANCE
As reported previously, we are deeply saddened by the fatal accidents in 2023. Full investigations were undertaken to identify the root causes of these accidents. The lessons learnt were shared across the Group and additional safety workshops were carried out to prevent these incidents from occurring again. Our safety procedures and programmes continued to be reinforced across the Group and we reiterate our commitment to guarantee a safe environment for all our people. Safety remains the absolute priority for the Board, the management and the Company. Work to instill a true culture of safety across our contractor and employee workforce is on-going and prioritised at every mine site.
ITEMS IMPACTING THE INCOME STATEMENT
Adjusted production costs in 2023 were impacted by:
1. The 11.7% average revaluation of the Mexican peso vs. the US dollar from $20.1 pesos per US dollar in 2022 to $17.8 pesos per US dollar in 2023, which is expected to have an adverse effect of c. US$125 million.
2. Ongoing cost inflation of 3.9%, excluding the effect of the revaluation of the Mexican peso vs. US dollar, which is expected to have a negative impact of c. US$60 million.
In addition, cost of sales is expected to be impacted by a decrease in inventories both at Juanicipio as a result of the start up of the beneficiation plant, enabling additional volumes to be processed and the historical stockpile to be depleted, and at Noche Buena as it approached the end of its mine life. This, together with the favourable effect of the reassessment of the gold inventories at Herradura, resulted in an estimated reduction in inventories of c. US$55 million in 2023. Otherwise, the reduction in inventories would have been c. US$85 million.
Administrative expenses are expected to increase by c. US$35 million vs 2022, mainly due to the adverse effects of the revaluation of the Mexican peso vs the US Dollar on administrative expenses denominated in pesos, including personnel salaries, and the increase in corporate expenses as a result of the review of the Shared Services Agreement with Peñoles in line with the increased services provided.
Depreciation is expected to be very similar to 2022 at c. US$500 million.
2024 OUTLOOK
Our 2024 outlook is in line with previous expectations:
· Attributable silver production expected to be in the range of 55.0 to 62.0 moz (including Silverstream)
· Attributable gold production expected to be in the range of 580 to 630 koz.
Expressed in silver equivalent ounces[1], production is expected to be 101-112 million ounces.
FULL YEAR FINANCIAL RESULTS
Fresnillo will announce its full year 2023 results on 5th March 2024.
[1] Au:Ag ratio of 80:1