Update on Trading

RNS Number : 8134E

Fresnillo PLC

13 February 2015

 

                                                                                                                      Fresnillo plc

                                                                                                                      28 Grosvenor Street

                                                                                                                      London W1K 4QR

                                                                                                                      United Kingdom

                                                                                                                      www.fresnilloplc.com

13 February 2015

Fresnillo plc ("Fresnillo", the "Company" or the "Group")

Update on Trading

Ahead of the release of the Company's 2014 Preliminary Results on 4 March 2015, Fresnillo provides detail on a number of items impacting the 2014 full year financial results. The below items, with the exception of the cost of sales, are non-cash items.

Impact of foreign currency movements

During the period from December 2013 to December 2014, the US dollar strengthened against the Mexican peso (from 13.077 to 14.718 MXN/USD). This led to an increase in the difference between accounting and tax values of certain assets and liabilities which resulted in a significant increase to the deferred tax charge, given deferred tax is recognised as the difference between the carrying amount of assets and liabilities (denominated in US dollars) and their tax bases (denominated in Mexican pesos) for both corporate income tax and the special mining right. As a result of this exchange rate movement the Company estimates an adverse effect on the deferred tax charge in the region of US$55 million, with no corresponding effect on cash flow during the period.

In addition, monetary assets and liabilities transacted in a foreign currency are originally recorded at the prevailing FX rate at the date of the transaction and, if they remain unsettled, are revalued at the year-end rate, generating unrealised foreign exchange results recognised in the income statement. The devaluation of the Mexican peso is therefore expected to generate a foreign exchange loss in the region of US$25 million, with no corresponding effect on cash flow in 2014. 

Silverstream revaluation

Despite the lower silver price, the Company expects the year end revaluation of the Silverstream to result in a gain in the region of US$75 million, due to a number of factors including increased resource grade at Sabinas, lower discount rates, higher than expected full year production and amortisation effects. 

Writedown of assets

The Company has re-assessed its plans for the Soledad and Dipolos operations and decided to write down the carrying value of certain property, plant and equipment that could not be utilised or reassigned, or remains at the site and is no longer considered to have a future economic benefit to the Group. A charge in the region of US$17 million will be reflected in the full year results for 2014 within other operating expenses, including the US$4.1 million reflected in the half year results.

Depreciation and cost of sales

When estimating production costs and depreciation for the second half of the year consideration should be given to the fact that Herradura (including the new Dynamic Leaching Plant (DLP)) was only in operation for 3 ½  months during the first half of the year, whilst it was fully operational in the last half.  Therefore, depreciation in the second half of 2014 is expected to be around US$30 million higher than in the first half of the year. In addition, we expect an adverse impact on cost of sales due to a combination of factors including the ramp-up at Herradura and start-up of the DLP, the previously announced processing capacity issues in relation to this, and temporary increases in stripping ratios at our open pit mines according to mine plans, which are expected to come down again in the near future. This is expected to have an adverse impact on gross profit of approximately US$20 million.

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

Fresnillo plc        

London Office                                                                     Tel: [phone]

Gabriela Major

Floriana Michalowska

Mexico City Office                                                              Tel: [phone]

Ana Belem Zárate                                                                     

Bell Pottinger                                                                      Tel: [phone]

Gavin Davis

Daniel Thole

Marianna Bowes

About Fresnillo plc

Fresnillo plc is the world's largest primary silver producer and Mexico's second largest gold producer, listed on the London and Mexican Stock Exchanges under the symbol FRES.

Fresnillo plc has six operating mines, all of them in Mexico - Fresnillo, Saucito, Ciénega (including the San Ramón satellite mine), Herradura, Soledad-Dipolos¹ and Noche Buena; one development project, San Julián, and four advanced exploration prospects - Centauro Deep, Juanicipio, Orisyvo and Las Casas Rosario as well as a number of other long term exploration prospects. In total, Fresnillo plc has mining concessions covering approximately 2.1 million hectares in Mexico.

Fresnillo plc has a strong and long tradition of mining, a proven track record of mine development, reserve replacement, and production costs in the lowest quartile of the cost curve for both silver and gold.

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.

¹Operations at Soledad and Dipolos are currently suspended.

 

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