1Q19 Production Report

RNS Number : 8743V

Fresnillo PLC

11 April 2019

 

                                                                                                        Fresnillo plc

21 Upper Brook Street

London W1K 7PY

United Kingdom

www.fresnilloplc.com

11 April 2019

First Quarter Production Report

for the three months ended 31 March 2019

Overview

• Quarterly silver production of 13.1 moz (including Silverstream) down 14.8% vs. 1Q18 mainly due to the lower ore grade and throughput at Fresnillo.

• Quarterly silver production (including Silverstream) down 15.3% vs. 4Q18 as a result of lower volumes of ore processed and lower ore grades at both San Julián Disseminated Ore Body and Saucito.

• Quarterly gold production of 211.1 koz, down 8.8% vs. 1Q18 mainly due to a lower volume of ore processed at Noche Buena and a slower overall speed of recovery on the leaching pads at Herradura.

• Quarterly gold production down 9.0% vs. 4Q18, driven by lower production from Noche Buena, Herradura, San Julián Veins and Saucito.

• Construction of the Pyrites plant (phase II) in the Fresnillo district remains on track and on budget, with commissioning expected in the second half of 2020.

• Board approval for development of the Juanicipio project, owned by Fresnillo plc (56%) and MAG Silver Corp (44%), announced today.

• Outlook unchanged: on track to achieve 2019 production guidance of 58-61 moz silver, (including Silverstream) and 910-930 koz gold.

Octavio Alvídrez, Chief Executive Officer, said:

"First quarter production is down as expected on the same period last year, though slightly weaker than anticipated. Full year guidance however remains unchanged as we expect to realise the benefits from the investments we have made into infrastructure, equipment and an extensive infill drilling programme, which will all have a positive impact on production in the second half.

We continue to maintain our disciplined approach to development, with an emphasis on efficiency and controlling costs underpinning projects. The construction of the tailings flotation plant at the Fresnillo mine is on track for completion in 2020. We are making good progress on our exploration pipeline and international exploration prospects.

I am also pleased to confirm we announced final Board approval of the Juanicipio development project today. We are confident Juanicipio will be a key project for Fresnillo. It is a high quality asset which we expect will make a meaningful contribution to production from late 2020, maintaining our long track record of high growth and returns."

Total Production

	1Q 19	1Q 18	% change	4Q 18
Silver (koz)	12,372	14,235	-13.1	14,647
Silverstream  (koz)	766	1,186	-35.4	860
Total Silver  (koz)	13,138	15,421	-14.8	15,507
Gold (oz)	211,110	231,458	-  8.8	232,026
Lead (t)	12,125	11,629	4.3	15,252
Zinc (t)	21,752	19,040	14.2	24,531

Silver

Quarterly silver production (including Silverstream) decreased 14.8% vs. 1Q18 primarily due to the lower ore grade and ore throughput at Fresnillo resulting from differences with the geological model as reported in prior quarters, lower equipment availability and the lower than expected volumes of development ore as a result of the narrower veins. The lower ore grades at Saucito, San Julián Veins and the San Julián Disseminated Ore Body (DOB) also had an adverse effect on silver production.

These factors were mitigated by the contribution of the Pyrites plant at Saucito following its commissioning in 2018 and the higher ore grade at Ciénega. 

Quarterly silver production (including Silverstream) decreased 15.3% vs. 4Q18 as a result of the anticipated lower volumes of ore processed and lower ore grades at San Julián DOB and Saucito. The decrease in ore grades at both Fresnillo and San Julián Veins also had an adverse effect on silver production.

Silver production from the Sabinas mine decreased 35.4% and 10.9% vs. 1Q18 and 4Q18 as a result of the lower ore grade.

Our 2019 silver production guidance of 58-61 moz silver (including Silverstream) is unchanged, as we expect to see the results from the investment in infrastructure and the measures put in place to increase productivity at the Fresnillo mine become more evident in the second half.

Gold

Quarterly gold production decreased 8.8% vs. 1Q18 due to the lower volume of ore processed at Noche Buena in accordance with the mine plan, and a slower overall speed of recovery at Herradura resulting from the higher level of the leaching pads, which increased the residence time of the solution in the pads. This adversely compares to the higher than expected gold production at Herradura in 1Q18 following a further inventory reduction at the leaching pads.

Quarterly gold production decreased 9.0% vs. 4Q18 resulting from the expected lower volume of ore processed at Noche Buena, the lower ore grade and slower overall speed of recovery at Herradura and the lower ore grades at both San Julián Veins and Saucito. This was mitigated by a higher ore grade at Fresnillo.

Our 2019 gold production guidance of 910-930 koz gold is unchanged, driven by increased production from Herradura as the construction of a new leaching pad is concluded in 2H19.

By-products

Quarterly by-product lead production increased 4.3% vs. 1Q18 due to a higher ore grade at Saucito. This was partially offset by a lower ore grade, volume of ore processed and recovery rate at Fresnillo.

Quarterly by-product lead production decreased 20.5% vs. 4Q18 driven by lower ore grades at Saucito, Fresnillo and San Julián DOB.

By-product zinc production increased 14.2% vs. 1Q18 as a result of the higher ore grade and recovery rate at Saucito, partially offset by a lower ore grade, volume of ore processed and recovery rate at Fresnillo.

Quarterly by-product zinc production decreased 11.3% vs. 4Q18 due to lower ore grades at both Saucito and Fresnillo as well as a lower ore grade and volume of ore processed at San Julián DOB.

Fresnillo mine production

	1Q 19	1Q 18	% change	4Q 18
Ore Processed (t)	574,347	637,410	- 9.9	571,330
Production
Silver (koz)	2,952	4,336	-31.9	3,244
Gold  (oz)	11,446	10,431	9.7	10,437
Lead (t)	3,537	5,783	-38.8	3,867
Zinc (t)	5,247	8,866	-40.8	6,153
Ore Grades
Silver (g/t)	181	232	-21.8	199
Gold (g/t)	0.82	0.66	24.2	0.76
Lead (%)	0.72	1.00	-28.1	0.79
Zinc (%)	1.31	1.90	-30.9	1.52

Quarterly silver production decreased 31.9% vs. 1Q18 due to a lower ore grade resulting from the previously described differences with the geological model, lower equipment availability and the lower than expected volumes of development ore as a result of the narrower veins.  

As described in prior quarters, we are taking a number of actions to address the Fresnillo mine performance, including intensifying our infill drilling programmes, controlling dilution, improving coordination amongst operating teams, improving the maintenence programme as well as making further investment in equipment and infrastructure. We are also trialing semi-automatic drilling equipment to limit down time during shift changes, and improving the speed of site access for operational staff to improve equipment utilisation rates.  

In addition, we have agreed to extend new employees' shifts into Sundays. We expect this will have a positive impact on volumes of ore processed after a period of training.

Silver production is down 9.0% vs. Q418 driven by the lower silver ore grade. This is due to the aforementioned differences with the geological model which are being addressed through an intense infill drilling programme.

Silver production is expected to gradually increase during the year, albeit with some monthly fluctuations, as the actions described above take effect.  As a result, silver production will be weighted to the second half of the year.

Expected silver ore grade in 2019 remains between 210-220 g/t.

Quarterly by-product gold production increased 9.7% vs. both, 1Q18 and 4Q18, due mainly to the higher ore grade.

Quarterly by-product lead and zinc production decreased 38.8% and 40.8% respectively vs. 1Q18 due to a lower ore grade, volume of ore processed and to a lesser extent, lower recovery rate.

When compared to the previous quarter, by-product lead and zinc production also decreased 8.5% and 14.7% repectively driven by a lower ore grade.

Saucito mine production

	1Q 19	1Q 18	% change	4Q 18
Ore Processed (t)	665,650	673,545	-1.2	693,608
Production
Silver (koz)	4,332	4,832	-10.3	4,890
Gold (oz)	18,729	16,880	11.0	22,932
Lead (t)	5,877	3,183	84.6	8,362
Zinc (t)	9,110	3,916	132.6	10,132
Ore Grades
Silver (g/t)	243	260	-6.6	260
Gold (g/t)	1.13	1.12	1.0	1.3
Lead (%)	1.03	0.57	81.3	1.36
Zinc (%)	1.94	0.96	102.3	2.21

Quarterly silver production decreased 10.3% vs. 1Q18 in line with expectations, driven by a lower ore grade as a result of the gradual depletion of higher ore grade areas. The expected silver ore grade for 2019 continues to be in the range of 210-220 g/t.

Similarly, quarterly silver production decreased 11.4% vs. 4Q18 as a result of a lower silver ore grade and a decrease in the volume of ore processed.

Quarterly by-product gold production increased 11.0% vs. 1Q18 resulting from a higher recovery rate. However, when compared to the previous quarter, by-product gold production decreased 18.3% resulting from a lower ore grade, and to a lesser extent, lower volume of ore processed.

Quarterly by-product lead production increased 84.6% vs. 1Q18 due to a higher ore grade. When compared to 4Q18, by-product lead production was 29.7% lower, driven by a lower ore grade.

First quarter by-product zinc production increased 132.6% vs. 1Q18 primarily due to a higher ore grade and, to a lesser extent, higher recovery rate. Against the previous quarter, by-product zinc production decreased 10.1% resulting mainly from a lower ore grade.

Pyrites Plant (Phase I)

	1Q 19	1Q 18	% change	4Q 18
Ore Processed (t)	47,846	N/A	N/A	56,699
Production
Silver (koz)	306	N/A	N/A	470
Gold (oz)	1,100	N/A	N/A	1,952
Ore Grades
Silver (g/t)	268	N/A	N/A	348
Gold (g/t)	2.1	N/A	N/A	2.5

The leaching plant of the Pyrites plant at Saucito contributed 306 koz of silver and 1,100 oz of gold in 1Q19, down 34.9% and 43.6% respectively vs. 4Q18. This resulted from the expected lower ore grade material processed at the plant as the stock pile with higher silver and gold content is depleted.

There is no comparable figure for 1Q18 as the plant was commissioned mid-2018.

The expected silver ore grade for 2019 continues to be between 190-210 g/t.

Ciénega mine production

	1Q 19	1Q 18	% change	4Q 18
Ore Processed (t)	320,990	320,006	0.3	340,529
Production
Gold  (oz)	14,681	16,377	-10.4	15,588
Silver (koz)	1,463	1,239	18.1	1,703
Lead (t)	981	1,335	-26.5	1,007
Zinc (t)	1,712	1,006	70.2	1,767
Ore Grades
Gold (g/t)	1.53	1.66	-7.7	1.49
Silver (g/t)	165	141	16.7	180
Lead (%)	0.49	0.67	- 27.4	0.48
Zinc (%)	0.89	0.72	23.1	0.87

First quarter gold production decreased 10.4% vs. 1Q18 due to the lower gold ore grade resulting from the depletion of the higher ore grade areas, and to a lesser extent, a lower recovery rate.

Quarterly gold production decreased 5.8% vs 4Q18 mainly due to a lower volume of ore processed resulting from one-off excess efficiency gains in the maintenance programme seen in the previous quarter, which further reduced downtime and resulted in two additional days of production.

Quarterly silver production increased 18.1% vs. 1Q18 resulting from a higher ore grade as a result of the access to higher silver ore grade areas, particularly at Taspana and Rosario. When compared to the previous quarter, silver production decreased 14.1% driven by an expected lower ore grade and lower volume of ore processed.

Expected gold ore grade in 2019 remains in the range of 1.60-1.70 g/t and silver ore grade is anticipated to be between 150-160 g/t.

Quarterly by-product lead production decreased 26.5% vs. 1Q18 as a result of a lower ore grade. Compared to 4Q18, by-product lead production decreased 2.6% due to a lower volume of ore processed, mitigated by a higher recovery rate.

By-product zinc production increased 70.2% vs. 1Q18 due to a higher ore grade and recovery rate. Compared to the previous quarter, by-product zinc production decreased 3.1% driven by a lower volume of ore processed.

San Julián mine production

	1Q 19	1Q 18	% change	4Q 18
Ore Processed Phase I Veins (t)	322,883	310,742	3.9	337,428
Ore Processed Phase II Disseminated ore body (t)	545,341	531,459	2.6	587,905
Total production at San Julián
Gold (oz)	18,139	19,791	- 8.3	23,003
Silver (koz)	2,953	3,568	-17.2	3,903
Production Phase I Veins
Gold (oz)	17,632	19,111	-7.7	22,065
Silver (koz)	1,084	1,445	-25.0	1,380
Production Phase II Disseminated ore body
Gold (oz)	508	680	-25.3	938
Silver (koz)	1,868	2,123	-12.0	2,524
Lead (t)	1,730	1,328	30.3	2,017
Zinc (t)	5,682	5,252	8.2	6,479
Ore Grades Phase I Veins
Gold (g/t)	1.78	1.97	-9.8	2.11
Silver (g/t)	114.81	158.35	-27.5	137.22
Ore Grades Phase II Disseminated ore body
Gold (g/t)	0.08	0.09	-16.5	0.1
Silver (g/t)	124.45	146.64	-15.1	158.09
Lead (%)	0.43	0.40	8.0	0.51
Zinc (%)	1.37	1.31	4.6	1.48

San Julián Veins

Quarterly silver and gold production decreased 25.0% and 7.7% respectively vs. 1Q18 due to a lower than expected ore grade, which is temporary, mitigated by a higher volume of mineral processed.

Similarly, quarterly silver and gold production decreased 21.4% and 20.1% respectively vs. 4Q18, due to the lower ore grade and to a lesser extent, a lower volume of ore processed resulting from mechanical difficulties with the mill.

We expect gold ore grades to be in the range of 1.6-1.7 g/t and silver grades to average between 130-140 g/t.

San Julián Disseminated Ore Body (DOB)

Quarterly silver production decreased 12.0% vs. 1Q18 due to a lower ore grade, mitigated by a higher volume of ore processed. Compared to the previous quarter, silver production decreased 26.0% resulting from a lower ore grade and volume of ore processed.

Quarterly gold production decreased 25.3% vs. 1Q18 due to a lower ore grade and a lower recovery rate. When compared to the previous quarter, gold production decreased 45.8% due to a lower ore grade, recovery rate and volume of ore processed.

The decrease in the silver ore grade is expected to be temporary and the guidance for the full year remains between 160-170 g/t.

Quarterly by-product lead production increased 30.3% vs. 1Q18 due to a higher ore grade and higher recovery rate. Compared to 4Q18, by-product lead production decreased 14.2% due to a lower ore grade and lower volume of ore processed, mitigated by a higher recovery rate.

Quarterly by-product zinc production increased 8.2% vs. 1Q18 due to a higher ore grade. When compared to 4Q18, by-product zinc production decreased 12.3% driven by a lower ore grade and volume of ore processed.

Herradura total mine production

	1Q 19	1Q 18	% change	4Q 18
Ore Processed (t)	5,695,073	5,984,641	-4.8	4,707,145
Total Volume Hauled (t)	29,132,741	34,153,768	-14.7	26,592,044
Production
Gold (oz)	116,879	125,243	-6.7	121,409
Silver (koz)	354	241	46.9	427
Ore Grades
Gold (g/t)	0.81	0.68	19.7	0.88
Silver (g/t)	2.90	1.86	55.9	3.64

Quarterly gold production decreased 6.7% vs. 1Q18 as expected primarily due to a slower overall speed of recovery resulting from the higher level of the leaching pads, which increased the residence time of the solution in the pads. This was mitigated by a higher ore grade mainly as a result of the contribution of the 2^nd line of the Dynamic Leaching Plant, which is now operating at full capacity. Additionally, 1Q19 gold production compared negatively to that of 1Q18 as there was a higher than expected gold production during 1Q18 following a further inventory reduction on the leaching pads.

The construction of an additional leaching pad is underway and due to be concluded in the second half of this year.

Quarterly gold production decreased 3.7% vs. the previous quarter due to a lower overall speed of recovery and lower ore grade, mitigated by a higher volume of ore processed as heavy rainfall in 4Q18 impacted operations at the Merrill Crowe plant.

Expected gold ore grade in 2019 remains at 0.70-0.75 g/t

Noche Buena total mine production

	1Q 19	1Q 18	% change	4Q 18
Ore Processed (t)	2,911,779	4,414,790	-34.0	4,395,527
Total Volume Hauled (t)	12,980,551	20,521,239	-36.7	17,220,712
Production
Gold (oz)	30,134	42,735	-29.5	36,705
Silver (koz)	12	19	-35.1	9
Ore Grades
Gold (g/t)	0.50	0.52	-3.9	0.50
Silver (g/t)	0.22	0.22	-1.3	0.09

Quarterly gold production decreased 29.5% vs. 1Q18 due to a lower volume of ore processed, but in accordance to the mine plan, and to a lesser extent, lower ore grade. This was mitigated by a higher speed of recovery as ore was deposited in new areas of the leaching pads at a lower altitude.

Similarly, gold production decreased 17.9% vs. 4Q18 resulting from a lower volume of ore processed, mitigated by a higher overall speed of recovery.

Expected gold ore grade in 2019 remains at approximately 0.55 g/t.

Update on development projects

Pyrites Plant

Construction of the flotation plant at the Fresnillo mine (phase II) remains on track, due to be commissioned in the second half of 2020.

The project is expected to improve overall recoveries of both gold and silver by processing historical and ongoing tailings from the Fresnillo and Saucito mines.

Once both phases are commissioned and operating at nominal capacity, this US$155 million project is expected to contribute an additional annual production of c. 3.5 moz of silver and c. 13 koz of gold.

Juanicipio

As separately announced by Fresnillo plc and MAG Silver Corp. today, Fresnillo is pleased to confirm the Juanicipio development project has now received Board approval. With a total average annual anticipated production of 11.7 moz silver and 43.5 koz gold, and an initial life of mine of 12 years, Juanicipio is expected to be a significant new asset for Fresnillo. The licence area also benefits from considerable future exploration potential. The project has been extensively de-risked through detailed pre-development work. Fresnillo has a long track record of successful mine development. Construction begins immediately and is expected to be concluded by late 2020, in line with the initial timetable.

Update on exploration

In 1Q19, 52,000 metres of drilling were completed at our operating mines for both converting resources to reserves and exploring adjacent veins. Priority was given to the Fresnillo and San Julián programmes.  In addition, 53,000 metres were drilled at the San Julián South, San Juan, Fresnillo, Juanicipio and Guanajuato projects in Mexico, and the Serena project in Chile. Interesting results were obtained in each of these six areas and are in follow-up. Mapping, sampling and geophysics surveys continue in the San Julián, Fresnillo, Guanajuato and Serena Districts to define additional targets while recently staked claims in Peru are being evaluated.

Safety Performance

As previously mentioned during our 2018 Preliminary Results, we deeply regret to report a contractor fatality at the beginning of 2019. Extensive work is on-going to further embed and align our safety culture into our contractors. This includes the continued roll-out of the "I Care We Care" programme and further safety training for all employees and contractors which remains a key focus area of the company. 

There will be a conference call for analysts and investors on Thursday 11th April at 8:45am (London time). The dial in details are as follows:

UK: 0808 109 0700

Int'l access: [phone]

Participant password: Fresnillo

A replay of the call will also be available for seven days after the event and details to access it will be published in our website after the conference call.

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

Fresnillo plc            London Office                                   Gabriela Mayor, Head of Investor Relations Patrick Chambers	Tel: [phone]
Mexico City Office Ana Belem Zárate	Tel: [phone]
Powerscourt Peter Ogden	Tel: [phone]

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 seven operating mines, all of them in Mexico - Fresnillo, Saucito, Ciénega (including the San Ramón satellite mine), Herradura, Soledad-Dipolos¹, Noche Buena and San Julián (Phase I and II), two development projects - the Pyrites Plant at Fresnillo and Juanicipio, and three advanced exploration projects - Orisyvo, Las Casas Rosario & Cluster Cebollitas and Centauro Deep, 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.

LEI: 549300JXWH1UV5J0XV81

 

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