TIDMFRES
RNS Number : 3389H
Fresnillo PLC
03 August 2021
Fresnillo plc
21 Upper Brook Street
London W1K 7PY
United Kingdom
www.fresnilloplc.com
3 August 2021
Fresnillo plc interim results
for the six months to 30 June 2021
Octavio Alvídrez, Chief Executive Officer, commented:
Our commitment to our purpose, to contribute to the wellbeing of
people through the sustainable mining of silver and gold, drives
our decisions as we navigate the on-going impact of the pandemic.
The safety of our people, their families and our communities is our
priority. We continue to engage extensively with our stakeholders
to ensure we are playing our part as a large employer and
long-standing community supporter, to contribute to the overall
efforts to manage these challenges. Our connection to our local
communities has only strengthened in the last 18 months, and the
support we have offered including investment in local healthcare,
employment and education programmes, has continued to increase.
"I am pleased to report a strong financial result in the first
half. The combination of improved production performance and higher
precious metals prices has seen a sharp increase in profitability
during the period. This in turn, has enabled us to declare a
dividend of US$73.0 million to shareholders, while continuing to
invest in both our development and exploration projects. The
Juanicipio mine remains on track, with commissioning of the
processing plant expected by the end of the year, and we are making
strong progress with our intensified exploration activities to
convert resources into reserves.
"With a proven strategy, high quality assets, talented
personnel, a very strong balance sheet and considerable development
pipeline, we are well placed to continue generating value for all
our stakeholders long into the future."
First half highlights
Financial highlights (1H21/1H20 comparisons)
-- Adjusted Revenues [1] of US$1,543.1m, up 37.1%; 75.8% of this
due to higher metal prices and 24.2% due to increased volumes.
-- Gross profit and EBITDA [2] of US$606.8m and US$747.0m, up 88.9% and 59.0%, respectively.
-- Operating profit and profit before income tax of US$471.9m
and US$445.4m, up 117.6% and 248.3%, respectively.
-- Profit for the period of US$308.4m, up 445.8%.
-- Basic and diluted EPS from continuing operations of US$41.0 cents per share, up 365.9%.
-- Adjusted EPS[3] of US$41.4 cents per share, up 250.8%.
-- Cash generated from operations, before changes in working capital, of US$750.4m, up 64.5%.
-- Free cash flow [4] of US$305.1m in 1H21 (US$265.7m in 1H20).
-- Strong balance sheet with cash and other liquid funds [5] as
at 30 June 2021 of US$1,202.9m (31 December 2020: $1,070.4m); net
debt/EBITDA of -0.02x [6] (31 December 2020: 0.08x).
-- Interim dividend of 9.90 US cents per share, totalling US$73.0m (1H20: 16.9m).
Operational highlights (1H21/1H20 comparisons)
As disclosed in the 2Q21 production report on 28 July 2021:
-- First half attributable silver production of 27.5 moz
(including Silverstream), up 2.7% vs. 1H20.
-- First half attributable gold production of 428.4 koz, up 12.3% vs. 1H20.
-- Continued progress was achieved on the construction of the
Juanicipio processing plant, with the assembly of flotation cells
and filters concluded during the quarter. Commissioning of the
plant in 4Q21 remains on track and on budget.
-- As previously reported, the connection of the new circuit to
the Fresnillo flotation plant was completed in 1Q21, and the
programming of the control loop system was concluded in 2Q21.
-- Ongoing focus on costs control and productivity.
Covid-19 update
We continue to prioritise the safety and welfare of our people
and our local communities. Our teams have adapted very well and we
have been able to contain the impact of the virus, though we remain
vigilant around the continued evolution of the pandemic and its
potential effect on our operations. Our various community health
programmes are on-going, as are the safety measures we put in place
last year.
Highlights for 1H21
US$ million unless H1 21 H1 20 % change
stated
Silver production
(koz) * 27,530 26,819 2.7
-------- -------- ---------
Gold production (oz) 428,356 381,319 12.3
-------- -------- ---------
Total revenues 1,466.8 1,054.2 39.1
-------- -------- ---------
Adjusted revenues(1) 1,543.1 1,125.1 37.1
-------- -------- ---------
Cost of Sales 860.1 733.0 17.3
-------- -------- ---------
Exploration expenses 60.9 50.7 20.0
-------- -------- ---------
EBITDA(2) 747.0 469.9 59.0
-------- -------- ---------
Profit for the period 308.4 56.5 445.8
-------- -------- ---------
Cash generated by
operations before
changes in working
capital 750.4 456.2 64.5
-------- -------- ---------
Basic and Diluted
EPS (US$)(3) 0.410 0.088 365.9
-------- -------- ---------
Basic and Diluted
EPS, excluding post-tax
Silverstream revaluation
effects (US$) 0.414 0.118 250.8
-------- -------- ---------
Dividend per ordinary
share (US$) 0.099 0.023 330.4
-------- -------- ---------
* 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) 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.
(3) The weighted average number of shares for H1 2021 and H1
2020 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 27.5 moz (including
Silverstream), up 2.7% vs. 1H20 mainly due to a higher ore grade at
San Julián Disseminated Ore Body (DOB) and, to a lesser extent, the
contribution of development ore from Juanicipio, partially offset
by a lower ore grade and volume of ore processed at Saucito.
First half attributable gold production of 428.4 koz, up 12.3%
vs. 1H20 primarily due to the higher volume of ore processed at
Herradura and, to a lesser extent, a higher ore grade at Saucito.
This was partially offset by a lower speed of recovery at Herradura
and Noche Buena.
First half attributable by-product lead and zinc production
increased 5.5% and 8.5% vs. 1H20 respectively primarily due to
higher ore grades at both Saucito and San Julián DOB, partially
offset by lower ore grades at both Fresnillo and Ciénega.
We are completing the roll-out of the 'I Care, We Care'
programme across all our operations, which has provided an
excellent focus for us all in the Group to ensure safety remains
our key focus.
Financial results
Total revenues increased 39.1% to US$1,466.8 million in 1H21,
due mainly to the increase in metal prices and, to a lesser extent,
higher volumes of all metals sold.
The average realised silver price increased 57.3% from US$16.8
per ounce in 1H20 to US$26.4 per ounce in 1H21, while the average
realised gold price rose 6.7%, from US$1,676.8 per ounce in 1H20 to
US$1,789.2 per ounce in 1H21. Further, the average realised lead
and zinc by-product prices increased 22.9% and 43.8% against their
corresponding periods, to US$0.96 and US$1.31 per pound,
respectively.
Adjusted production costs [7] increased by 20.6% to US$611.1
million in 1H21. The US$104.5 million increase resulted mainly
from: i) a higher volume of ore processed at Herradura following
Covid-19 operational restrictions in 1H20 (US$52.8 million); ii)
increased development and infrastructure works at our underground
mines (US$24.9 million); iii) cost inflation, excluding the Mexican
peso vs. US dollar revaluation effect (US$21.3 million); iv) the
adverse effect of the revaluation of the Mexican peso vs. US dollar
(US$19.5 million)[8] and; v) costs from the start-up of operations
at Juanicipio (US$4.3 million). These adverse impacts were
mitigated by a decreased volume of ore processed at Saucito, San
Julián (Veins and DOB) and Fresnillo (-US$14.3 million) and others
(-US$3.9 million).
Additionally, the variation in the change in work in progress
had a negative effect of US$12.5 million versus 1H20. This resulted
mainly from recognising a smaller favourable effect from the
reassessment of recoverable gold inventories at the leaching pads
in 1H21 compared to the one recorded in 1H20.
Depreciation rose 5.4% compared with 1H20, mainly due to
increased amortisation of capitalised mining works and increased
depletion factors at Fresnillo and San Julián, in addition to the
higher depreciation at Herradura and Noche Buena as some equipment
was not in use during the period when preventive measures related
to Covid-19 were in place in 1H20.
The higher adjusted production costs, adverse effect of the
variation in change in work in progress at Herradura and the
increase in depreciation resulted in a 17.3% increase in cost of
sales compared with 1H20.
The increase in total revenues more than offset the increase in
cost of sales, resulting in an 82.1% increase in gross profit to
US$584.9 million in 1H21.
Administrative and corporate expenses increased 22.5% from
US$41.8 million in 1H20 to US$51.2 million in 1H21, mainly due to
an increase in fees paid to advisors, the increase in non-recurring
corporate services provided by Servicios Industriales Peñoles
S.A.B. de C.V. and the adverse effect of the revaluation of the
Mexican peso vs. the US dollar.
Exploration expenses increased 20.0% over 1H20 due to the higher
budget allocated and our intensified exploration activities aimed
at converting resources into reserves and direct mine development
at our operations.
Driven by an increase in gross profit, EBITDA increased by
59.0%, with EBITDA margin increasing from 44.6% in 1H20 to 50.9% in
1H21. Similarly, profit from continuing operations increased from
US$216.9 million in 1H20 to US$471.9 million in 1H21, an increase
of 117.6%.
During the period, there was a net negative Silverstream effect
of US$4.0 million (US$21.1 million amortisation profit and US$25.1
million revaluation loss), primarily due to the increase in the
LIBOR reference rate; and a decrease in the production plan due to
a silver resources update; partly compensated by inflation and
exchange rate forecasts and a slight increase in the forward silver
price curve.
Net finance costs of US$25.4 million compared unfavourably to
the US$16.2 million recorded in 1H20. Financial expenses in 1H21
included: i) interest paid on the outstanding US$317.9 million from
the US$800 million Senior Notes due 2023, and ii) interest paid on
the 4.250% Senior Notes due 2050. In 1H20, financial expenses
mainly reflected the interest paid on the US$800 million Senior
Notes due 2023.
We recorded a foreign exchange gain of US$2.9 million in the
income statement. This was as a result of the 0.73% revaluation of
the Mexican peso against the US dollar over the period. This
compared favourably to the US$41.0 million loss in 1H20.
As a result of the increase in profit from continuing
operations, partly offset by the adverse effects mentioned above,
profit from continuing operations before income tax increased
248.3% from US$127.9 million in 1H20 to US$445.4 million in
1H21.
Income tax for the period was US$111.1 million (US$62.0 million
in 1H20). The effective tax rate, excluding the special mining
rights, was 24.9%, which was below the 30% statutory tax rate. The
reason for the lower effective tax rate was the significant
permanent differences between the tax and the accounting treatment
related mainly to: i) the revaluation of the Mexican peso, which
had a significant impact on the tax value of assets and liabilities
that are denominated in Mexican pesos; ii) the inflation rate
(Mexican Consumer Price Index), which impacted the inflationary
uplift of the tax base for assets and liabilities; and iii) the
benefit from the lower border zone tax which applied to Herradura
and Noche Buena operations.
Net profit for the period increased 445.8% from US$56.5 million
to US$308.4 million in 1H21.
Cash flow generated by operations, before changes in working
capital, increased by 64.5% to US$750.4 million.
Capital expenditure totalled US$256.8 million, an increase of
41.1% compared to 1H20, reflecting a faster rate of deploying
capital following the disruption caused by Covid-19. Investments
during the period included construction of Juanicipio, mine
development, purchase of in-mine equipment, construction of a
leaching pad at Herradura and the deepening of the San Carlos and
Jarillas shafts.
Other uses of funds during the period were income tax, special
mining rights and profit sharing paid of US$253.5 million (US$71.0
million in 1H20) and dividends paid of US$172.6 million (US$87.7
million in 1H20).
Cash and other liquid funds as at 30 June 2021 totalled
US$1,202.9 million, a 133.7% increase compared to the US$514.7
million in cash and other liquid assets at the end of June 2020 and
a 12.4% increase over the year-end total of US$1,070.4 million.
Taking into account the cash and other liquid funds of US$1,202.9
million and the US$1,167.8 million outstanding Senior Notes,
Fresnillo plc's net debt was -US$35.1 million as at 30 June 2021,
compared with a net debt position of US$97.4 million for the
corresponding period in the previous year. Considering these
variations, the balance sheet at 30 June 2021 remains strong, with
a net debt / EBITDA ratio of -0.02x[9].
Interim Dividend
The Board of Directors has declared an interim dividend of 9.90
US cents per share totalling US$73.0 million to be paid on 15
September 2021 to shareholders on the register on 13 August 2021.
This decision was made after a comprehensive review of the
Company's and Group's financial situation, as well as the Company's
distributable earnings, ensuring 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% relating to the payment of dividends, including to foreign
nationals.
Historically the Company has been making dividend payments out
of retained earnings generated before the tax reform came into
force and no withholding tax has therefore been applied. Dividend
payments relating to 2021 and future years will attract the
withholding obligation. However, foreign shareholders may be able
to recover such tax depending on their tax residence and the
existence of double taxation agreements.
Growth
We made good progress on our development projects in 1H21.
Despite the adversity caused by the pandemic, we continue to
advance our key project, Juanicipio . Progress was achieved on the
construction of the beneficiation plant with commissioning expected
in 4Q21.
Mine development fell behind over the last three months but,
with a new contractor in place, is now advancing as planned. We
continue to process development ore through the Fresnillo
beneficiation plant. Juanicipio will be a major factor in the
Group's future silver production.
The new Pyrites Plant at the Fresnillo mine was completed on
schedule early in 4Q20 - the start of operations was deferred
mainly due to a delay in final inspections by the authorities at
the Mexican state-owned electricity utility Comisión Federal de
Electricidad (CFE) as a result of Covid-19 restrictions on travel
and other regulatory delays. We continue to anticipate that this
inspection will take place in the third quarter of 2021. However,
the timing of both, this and the future inspection required to
connect the Juanicipio plant, is out of our control.
The connection of the new flotation circuit to the Fresnillo
flotation plant, which required a few days' stoppage of the
existing beneficiation plant, was completed in 1Q21, and the
programming of the control loop system was concluded in 2Q21.
Outlook
We remain on track to meet our 2021 full year guidance of 53.5
to 59.5 moz of silver (including Silverstream) and 675 to 725 koz
of gold. We are assessing any potential impact that might result
from the implementation of the new law restricting the ability to
subcontract labour in Mexico. However, these new measures are not
expected to materially impact second half production.
Exploration expenses are expected to remain within the range of
US$175-US$180 million, of which approximately US$15 million is
anticipated to be capitalised.
The Group has reduced its estimated capex from US$680 million to
approximately US$580 million to reflect the lower rate of capital
deployment at our different mines and projects.
Analyst Presentation
Management will host a webcast for analysts and investors today
at 3pm UK / 9am Mexico. Registration and access will be provided on
the homepage of Fresnillo's website and directly via this link:
https://kvgo.com/IJLO/Fresnillo_HY_2021_Interim_Results
For those unable to access the webcast, a conference line will
also be provided:
UK: +44 (0) 33 0551 0200
US: +1 212 999 6659
MX: 00 1 866 966 8830
Password: Quote Fresnillo when prompted by the operator
Questions may be submitted via the conference dial-in.
For further information, please visit our website:
www.fresnilloplc.com or contact:
Fresnillo plc
London Office Tel: +44(0)20 7339 2470
Gabriela Mayor, Head of Investor
Relations
Patrick Chambers
Mexico City Office Tel: +52 55 52 79 3206
Ana Belém Zárate
Powerscourt Tel: +44(0)20 7250 1446
Peter Ogden
ABOUT FRESNILLO PLC
Fresnillo plc is the world's largest primary silver producer and
Mexico's largest gold producer, listed on the London and Mexican
Stock Exchanges under the symbol FRES.
Fresnillo plc has seven operating mines, all of them in Mexico -
Fresnillo, Saucito, Ciénega (including the San Ramón satellite
mine, Las Casas Rosario & Cluster Cebollitas), Herradura,
Soledad-Dipolos(1) , Noche Buena and San Julián (Veins and
Disseminated Ore Body), three development projects - the Pyrites
Plant at Fresnillo, the optimisation of the beneficiation plant
also at Fresnillo and Juanicipio, and three advanced exploration
projects - Rodeo, Orisyvo and Guanajuato, 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.
1H21 Operational Review
Production
Production H1 2021 H1 2020 % change
Silver (koz) 25,931 25,491 1.7
-------- -------- ---------
Silverstream prod'n
(koz) 1,599 1,328 20.4
-------- -------- ---------
Total Silver prod'n
(koz) 27,530 26,819 2.7
-------- -------- ---------
Gold (oz) 428,356 381,319 12.3
-------- -------- ---------
Lead (t) 31,726 30,085 5.5
-------- -------- ---------
Zinc (t) 53,568 49,381 8.5
-------- -------- ---------
First half attributable silver production of 27.5 moz (including
Silverstream), up 2.7% vs. 1H20 due to a higher ore grade at San
Julián DOB and, to a lesser extent, the contribution of development
ore from Juanicipio, partially offset by a lower ore grade and
volume of ore processed at Saucito.
First half attributable gold production of 428.4 koz, up 12.3%
vs. 1H20 primarily due to the higher volume of ore processed at
Herradura and, to a lesser extent, a higher ore grade at Saucito.
This was partially offset by a lower ore grade at Ciénega and a
lower ore grade and recovery rate at Noche Buena.
First half attributable by-product lead and zinc production
increased 5.5% and 8.5% vs. 1H20 respectively primarily due to
higher ore grades at both Saucito and San Julián DOB, partially
offset by lower ore grades at both Fresnillo and Ciénega.
Fresnillo mine production
H1 2021 H1 2020 % change
Ore Processed (t) 1,141,223 1,194,905 (4.5)
---------- ---------- ---------
Production
---------- ---------- ---------
Silver (koz) 6,608 6,756 (2.2)
---------- ---------- ---------
Gold (oz) 17,112 19,609 (12.7)
---------- ---------- ---------
Lead (t) 9,367 11,477 (18.4)
---------- ---------- ---------
Zinc (t) 15,546 17,737 (12.3)
---------- ---------- ---------
Ore Grades
---------- ---------- ---------
Silver (g/t) 202 196 2.7
---------- ---------- ---------
Gold (g/t) 0.69 0.72 (4.2)
---------- ---------- ---------
Lead (%) 0.97 1.14 (14.7)
---------- ---------- ---------
Zinc (%) 1.95 2.12 (7.9)
---------- ---------- ---------
First half silver production decreased 2.2% vs. 1H20 due to a
lower volume of ore processed resulting from a temporary
ventilation system failure and an increased presence of water at
the San Alberto area in June together with the additional
rehabilitation and maintenance of certain ramps as reported in
1Q21. This was mitigated by a higher ore grade partly as a result
of the enhanced dilution control during the year.
Mine development rates increased slightly half on half to an
average of 3,285m per month in 1H21 vs. 3,190m per month in 1H20.
The target remains to develop on average between 3,300 - 3,500m per
month in 2021.
First half by-product gold production decreased 12.7% vs. 1H20
due to a lower ore grade and a decrease in the volume of ore
processed.
The silver ore grade in 2021 is expected to remain in the range
of 190-210 g/t, while the gold ore grade is expected to remain in
the range of 0.55-0.70 g/t.
Saucito mine production
H1 2021 H1 2020 % change
Ore Processed (t) 1,310,923 1,385,385 (5.4)
---------- ---------- ---------
Production
---------- ---------- ---------
Silver (koz) 6,602 8,141 (18.9)
---------- ---------- ---------
Gold (oz) 51,578 41,574 24.1
---------- ---------- ---------
Lead (t) 15,490 11,972 29.4
---------- ---------- ---------
Zinc (t) 23,570 17,744 32.8
---------- ---------- ---------
Ore Grades
---------- ---------- ---------
Silver (g/t) 184 210 (12.8)
---------- ---------- ---------
Gold (g/t) 1.58 1.21 31.0
---------- ---------- ---------
Lead (%) 1.38 1.02 35.4
---------- ---------- ---------
Zinc (%) 2.45 1.84 33.3
---------- ---------- ---------
First half silver production decreased 18.9% vs. 1H20 as a
result of the gradual depletion of higher ore grade areas at the
Jarillas vein. The lower volume of ore processed was primarily
driven by the presence of high temperature water in an underground
production area, which temporarily limited access to that zone and
a section of the ramps, also resulting in the need for additional
ventilation.
First half by-product gold production increased 24.1% vs. 1H20
driven by a higher ore grade, partially offset by a lower volume of
ore processed.
Given the lower silver grade in 1H21, the full year 2021 silver
ore grade is expected to be at the lower end of the original
estimate of 200-220g/t, while the gold ore grade is estimated to be
around 1.3-1.5 g/t.
PYRITES PLANT (PHASE I)
H1 2021 H1 2020 % change
Pyrite Concentrates Processed (t) 90,283 80,502 12.2
-------- -------- ---------
Production
-------- -------- ---------
Silver (koz) 304 505 (39.8)
-------- -------- ---------
Gold (oz) 1,399 1,795 (22.1)
-------- -------- ---------
Ore Grades
-------- -------- ---------
Silver (g/t) 145 252 (42.5)
-------- -------- ---------
Gold (g/t) 1.60 2.11 (24.2)
-------- -------- ---------
First half silver and gold production decreased vs. 1H20 due to
lower ore grades from Saucito's flotation plant and lower recovery
rates, mitigated by a higher volume of pyrite concentrates
processed.
In 2021, we continue to expect production from this plant at
Saucito to remain unchanged year-on-year.
Ciénega mine production
H1 2021 H1 2020 % change
Ore Processed (t) 660,123 657,893 0.3
-------- -------- ---------
Productio n
-------- -------- ---------
Gold (oz) 26,696 32,374 (17.5)
-------- -------- ---------
Silver (koz) 2,723 2,969 (8.3)
-------- -------- ---------
Lead (t) 2,191 3,237 (32.3)
-------- -------- ---------
Zinc (t) 3,642 4,909 (25.8)
-------- -------- ---------
Ore Grades
-------- -------- ---------
Gold (g/t) 1.34 1.65 (18.4)
-------- -------- ---------
Silver (g/t) 150 163 (8.2)
-------- -------- ---------
Lead (%) 0.54 0.75 (27.7)
-------- -------- ---------
Zinc (%) 0.99 1.24 (20.1)
-------- -------- ---------
In line with the planned mine sequence, first half gold and
silver production decreased vs. 1H20, due to the lower ore
grades.
The gold and silver ore grades for 2021 are expected to remain
in the range of 1.30-1.40 g/t and 150-160 g/t respectively.
San Julián mine production
H1 2021 H1 2020 % change
Ore Processed Veins (t) 591,148 621,973 (5.0)
---------- ---------- ---------
Ore Processed DOB (t) 1,003,728 1,101,489 (8.9)
---------- ---------- ---------
Total production at San Julián
---------- ---------- ---------
Gold (oz) 29,346 31,535 (6.9)
---------- ---------- ---------
Silver (koz) 8,649 6,277 37.8
---------- ---------- ---------
Production Veins
---------- ---------- ---------
Gold (oz) 27,147 30,242 (10.2)
---------- ---------- ---------
Silver (koz) 1,992 2,121 (6.1)
---------- ---------- ---------
Production DOB
---------- ---------- ---------
Gold (oz) 2,199 1,293 70.1
---------- ---------- ---------
Silver (koz) 6,657 4,156 60.2
---------- ---------- ---------
Lead (t) 4,507 3,400 32.6
---------- ---------- ---------
Zinc (t) 10,533 8,991 17.1
---------- ---------- ---------
Ore Grades Veins
---------- ---------- ---------
Gold (g/t) 1.52 1.58 (4.1)
---------- ---------- ---------
Silver (g/t) 115 115.37 (0.3)
---------- ---------- ---------
Ore Grades DOB
---------- ---------- ---------
Gold (g/t) 0.12 0.08 45.0
---------- ---------- ---------
Silver (g/t) 240 136.93 75.5
---------- ---------- ---------
Lead (%) 0.55 0.39 38.4
---------- ---------- ---------
Zinc (%) 1.38 1.10 24.9
---------- ---------- ---------
San Julián Veins
First half gold production decreased 10.2% vs. 1H20 due to a
lower volume of ore processed and lower ore grade due to the
depletion of higher ore grade areas.
First half silver production decreased 6.1% vs. 1H20 due to a
lower volume of ore processed resulting from the adverse impact of
the reported electricity outage by the Mexican state-owned
electricity utility Comisión Federal de Electricidad (CFE) in
February.
We continue to expect the 2021 silver and gold ore grades to
average 110-120 g/t and 1.30-1.50 g/t, respectively.
San Julián Disseminated Ore Body
First half silver production increased 60.2% vs. 1H20 due to a
higher than expected ore grade as a result of: i) the positive
variation with the geological model in the Central area of the ore
body; and ii) access to higher ore grade areas following the mine
resequencing in 2019, as mentioned in previous quarters. This was
partially offset by a lower volume of ore processed, primarily in
1Q21, as a result of the damage to the lead circuit housing at the
end of 2020 and the electricity outage by the CFE in February.
We are in the process of reviewing the positive reconciliation
of the silver ore grade in production with the geological model, in
particular in high grade areas. However, if this trend continues,
silver ore grade for 2021 is expected to be between 200-230
g/t.
Herradura mine production
H1 2021 H1 2020 % change
Ore Processed (t) 11,494,407 8,130,282 41.4
----------- ----------- ---------
Total Volume Hauled (t) 66,655,154 52,783,600 26.3
----------- ----------- ---------
Production
----------- ----------- ---------
Gold (oz) 258,165 205,746 25.5
----------- ----------- ---------
Silver (koz) 530 824 (35.7)
----------- ----------- ---------
Ore Grades
----------- ----------- ---------
Gold (g/t) 0.81 0.82 (1.3)
----------- ----------- ---------
Silver (g/t) 2.03 3.82 (46.8)
----------- ----------- ---------
First half gold production increased 25.5% vs. 1H20 due to a
higher volume of ore processed, partially offset by the lower
recovery rate resulting from a slower speed of recovery on the
leaching pads.
The gold ore grade in 2021 is expected to remain in the range of
0.70-0.75 g/t, despite 1H21 ore grade being above this
guidance.
Following the re-assessment of the remaining recoverable gold
content on the old leaching pads conducted last year, an increase
of 119.3 thousand ounces of gold had been recorded as at 1st
January 2020. There was no further update to the estimate in the
current period.
Noche Buena mine production
H1 2021 H1 2020 % change
Ore Processed (t) 3,703,923 3,330,054 11.2
----------- ----------- ---------
Total Volume Hauled (t) 13,248,211 15,717,399 (15.7)
----------- ----------- ---------
Production
----------- ----------- ---------
Gold (oz) 43,228 48,686 (11.2)
----------- ----------- ---------
Silver (koz) 12 19 (34.6)
----------- ----------- ---------
Ore Grades
----------- ----------- ---------
Gold (g/t) 0.52 0.54 (3.9)
----------- ----------- ---------
Silver (g/t) 0.19 0.38 (51.3)
----------- ----------- ---------
First half gold production decreased 11.2% vs. 1H20 due to a
lower recovery rate and to a lesser extent, lower ore grade as a
result of the expected depletion of the mine as it approaches
closure. This was mitigated by a higher volume of ore processed
following the Covid-19 related operational restrictions last year
which resulted in lower volumes of ore deposited during 2Q20.
The expected gold ore grade in 2021 is predicted to remain in
the range of 0.40-0.50 g/t.
Growth Projects
Capital expenditure guidance for the full year 2021 has been
reduced from US$680 million to approximately US$580 million to
reflect the lower rate of capital deployment at our different mines
and projects.
Pyrites Plant at Fresnillo
The Pyrites Plant (phase II) was completed on time in 4Q20 but
the inspection that is required to be carried out by the
authorities in order to grant the energy permit has been delayed
due to Covid-19 restrictions on travel and other regulatory delays.
We continue to anticipate that the inspection will take place in
3Q21.
Optimisation of the beneficiation plant at the Fresnillo
mine
The connection of the new circuit to the Fresnillo flotation
plant was completed in 1Q21, and the programming of the control
loop system was concluded in 2Q21.
Juanicipio
Development ore from Juanicipio continued to be processed
through the Fresnillo mine beneficiation plant during the quarter.
On an attributable basis, 502.5 koz of silver and 831.4 oz of gold
were produced in 1H21.
Continued progress was achieved on the construction of the
Juanicipio processing plant with the assembly of flotation cells
and filters being completed during the quarter. Commissioning of
the plant in 4Q21 remains on track.
Mine development fell behind over the last three months but,
with a new contractor in place, is now advancing as planned.
We expect to process an average of 16,000 tonnes per month
through to 4Q21 on a consolidated basis, at which time we expect to
start commissioning the Juanicipio beneficiation plant.
Juanicipio is expected to contribute a total average annual
production of 11.7 moz silver and 43.5 koz gold, with an initial
life of mine of 12 years.
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 2021 approved capex and
exploration budget.
Advanced exploration projects
Rodeo
This gold-silver project is located in Durango. Negotiations to
acquire the right to access the land and engage with the
surrounding communities continued. Indicated and inferred resources
amounted to 1.3 million ounces of gold and 13 million ounces of
silver as of 31st of May 2020(4) .
Orisyvo
Detailed metallurgy testing continued during the period, with
samples obtained from the drilling programme completed in 2020. The
selected ore processing methodology and associated gold recoveries
will be used to update the pre-feasibility study. In addition, we
are preparing a 6,000 drilling programme for geotechnical purposes.
The Orisyvo project is expected to commence production in 2H25,
following an estimated investment in the range of US$430-US$500
million.
Guanajuato
Guanajuato is a large historic silver-gold mining district. The
Fresnillo holdings are comprised of three areas of interest: the
Gigante-Opulencia systems in the north, the Las Torres-San Gregorio
targets in the centre of the district and La Joya-Cerro Blanco in
the south. In 1H21, exploration continued with 13,887 metres
drilled.
At the end of May 2020, indicated and inferred resources at this
project totalled 1.5 million ounces of gold and circa 96 million
ounces of silver.
Centauro pit expansion and Centauro underground
During the first half of the year, drilling activities continued
focusing in near-pit high-grade veins. Additional exploration will
be conducted prior to reevaluating this project again in the
future.
Exploration
In the first half of 2021, drilling campaigns were intensified
by both the mines and the Exploration division teams, reaching a
combined amount of 383,221 metres.
An intensive programme is being carried out across all of our
operations, aiming at increasing the resource base, converting
inferred resources into indicated, and improving the confidence of
the grade distribution in reserves.
By the end of the period, 3D geological models that will be used
for the resources and reserves estimation were completed; and so
was the update of the majority of the costs, geohydrology,
ventilation, and geotechnical elements that have been refined over
the last year. The latter data will be incorporated in the improved
reserve estimation process to begin in 3Q21.
The Exploration division drilled a total of 99,973 meters, 75%
of which were dedicated to brownfield exploration, mainly at the
Fresnillo and San Julián districts, obtaining good results that are
expected to increase inferred and indicated resources at these
sites. The remaining 25% was spent on greenfield projects in
Guanajuato, Mexico, and in the Capricornio and Condoriaco projects
in Chile, where interesting results have also been obtained and are
being followed up with additional drilling.
Geological mapping and geochemical sampling were intensified in
the Fresnillo, Herradura and San Julián districts, as well as in
Guanajuato and other projects in Peru and Chile, where new drill
targets are being developed. All of our exploration efforts are
being implemented under strict sanitary protocols with respect to
the Covid-19 pandemic.
In the first six months, US$60.9 million of exploration expenses
were recorded in the income statement, an increase of 20.0% over
1H20.
Total risk capital expected to be invested in exploration for
the full year 2021 remains at approximately US$160 million.
Related party transactions
Details of related party transactions that have taken place in
the first six months of the current financial year are detailed in
note 16 of the interim consolidated financial statements.
Health and safety, environment and community relations
Covid-19 remains a threat to lives and a challenge to the
livelihoods of everyone. Throughout the Covid-19 outbreak we have
kept the health of our people our number one priority, implementing
measures to protect our people and collaborate with our
communities.
Health & Covid-19
We strive to keep our people healthy and to prevent occupational
diseases. We maintain a comprehensive strategy to protect employees
and contractors in our mining operations from Covid-19. Some of the
key measures we have implemented include; 1) education and
awareness; 2) social distancing in the workplace; 3) hygiene and
sanitation of our facilities; 4) access control and; 5) testing,
monitoring and contagion traceability. We have engaged our
workforce on the benefits of vaccinations and have collaborated
with Mexican authorities, including the hosting of vaccination
centres at some of our mines so as to serve our communities and our
people.
Our workforce
Our workforce is a key stakeholder. The case for board-level
engagement is not only based on fairness but on the strategic
opportunity to give voices to the people that have first-hand
knowledge of the Company and the environment in which the Company
operates. Bringing worker's voices to the Boardroom is essential in
order to incorporate their perspective into the strategic
discussions and decision making. In June and July this year, our
Designated Non-Executive Director (NED) for workforce engagement
held two online town hall meetings with unionised and non-unionised
employees. During these sessions, our NED raised some strategic
issues for discussion, while also encouraging participants to
freely discuss other relevant topics, with the intention of gaining
further insights and ultimately providing feedback to the board.
Strategic topics discussed included: Health, Safety, Covid-19,
Ethical Culture, Inclusion, and Gender Equality. We have conducted
a comprehensive organisational cultural assessment to identify gaps
and opportunities to align our culture and strategy.
In the first half of 2021, our workforce totalled 19,333 (18,475
in the first half of 2020), of which 4,327 were unionised
employees, 1,431 were non-unionised employees and the remainder
were contractors. We continue to make progress in developing an
inclusive culture and increasing the participation of women in our
workforce. The total percentage of women increased to 10.6% (9.7%
in 2020) while our percentage of non-unionised and unionised women
increased to 12.4% from 11.3% in 2020. Voluntary labour turnover
increased in 1H21 to 5.0% (4.0% in 2020), however total turnover
decreased to 8.3% from 9.6% in 2020. We are conducting a diversity
survey while holding focus groups to help better identify gaps and
opportunities within the Group to foster the inclusion of women in
mining.
On 23 April 2021, the Mexican Government published new
regulations (the "New Regulations") prohibiting the sub-contracting
of services (also known as "outsourcing"), except for qualified
specialised services or works that are not encompassed within the
main business purpose of the contracting entity. Initially, a
three-month transition period expiring on 1 August 2021 was granted
to allow employers to implement necessary arrangements in order to
comply with the tax, labour and social security provisions. On 30
July 2021, Mexico's two houses of Congress granted an extension to
the transition period until 1 September 2021. Based on the Group's
analysis of possible arrangements, the New Regulations are not
expected to materially impact production or costs in the second
half of 2021.
Safety
Our goal is to instil a safety culture based on caring for our
people. We continue to make progress with the implementation of the
"I Care, We Care" programme that enables the organisation to
embrace ongoing innovation and continuous improvement regarding
safety practices, risk assessments and controls, and emergency
preparedness.
The programme is based on four key components; 1) Leadership; 2)
Accountability; 3) Risk Proficiency: behaviours and systems and; 4)
Learning environment and now complemented with management of high
potential accidents and near misses as well as critical controls.
The Group's leadership team attended a workshop to enhance their
understanding of the programme and strengthen its
implementation.
Although our Total Recordable and Lost Time Injury Frequency
Rates improved compared to 2020 from 13.893 injuries for every
1,000,000 hours worked (mhw) (2020) to 9.328 mhw (1H21) and 6.188
mhw (2020) to 4.687 mhw (1H21) respectively, we recognise the long
road ahead to mature our safety culture.
Environment
Our Independent Tailings Review Panel (ITRP) has been
successfully operating online, providing guidance and
recommendations for the safe design, construction and operation of
our Tailings Storage Facilities (TSF). We have Master Services
Agreements with several recognised consultancies and, through them,
named Engineers of Record (EoRs) for our TSF.
Community Relations
The communities where we operate are strategic stakeholders. We
work with our communities to develop a purposeful social investment
portfolio aligned with the relevant United Nations Sustainable
Development Goals (UN SDGs). Over the years, we have increased our
partnerships with civil society organisations in order to build
capacity in the communities where we operate.
Sustainable Development Goal 3 "Good Health and Wellbeing"
We collaborated with the Ministry of Public Welfare (Secretaría
del Bienestar) to help roll out Mexico's vaccination programme
within the Caborca Region (Penmont Mining District). A regional
vaccination centre was set up at the community of "La Y Griega"
where 5,360 vaccine doses were administered, benefiting 30
communities. In addition, vaccinations were administered at our
Herradura mine, where 2,500 vaccine doses were administered
benefiting our workforce and nearby communities. We have also
worked alongside authorities to set up a vaccination centre at our
San Julián Mine for the benefit of our workforce, local communities
and the indigenous people.
Sustainable Development Goal 4 "Quality Education"
Covid-19 has had a considerable impact on education due to the
closure of schools. Communities with little or no access to the
internet have been disproportionally affected. To bridge the gap,
we launched a pilot project of educational Internet (WIFI with
educational content) in some remote communities of the San Julián
and Penmont mines. We expect that this technology will be
particularly useful for teachers and parents in the forthcoming
school reopening. In the Fresnillo District, we pursued efforts in
the support of STEM education with a virtual tour to the Peñoles
metal museum benefiting 13 schools. In addition, we ran the UNESCO
pilot project "I explore my world and take care of my body" with
the support of INNOVEC in the community of Desemboque (Caborca
Region). This is an educational module developed by UNESCO Mexico
in conjunction with the Siemens Stiftung Foundation. The programme
is a journey into the understanding of the human body and the five
senses that enhance well-being of children between ages 3 to 8,
raising awareness of emotions and promoting a gender perspective of
equity and inclusion.
Sustainable Development Goal 8 "Decent Work and Economic
Growth"
We continued with our entrepreneurial programme with training
for women of the communities of La Ciénega. At Juanicipio, together
with our communities, we developed the "Nopal Forrajero" (Nopal
fodder for livestock), vegetable gardens and backyard poultry
programmes, benefiting a total of 57 families.
Our Environment, Social and Governance (ESG) performance was
once again recognised by the inclusion of Fresnillo plc in the
FTSE4Good Index and Ethisphere's world most ethical companies.
FINANCIAL REVIEW
The interim consolidated financial statements of the Group for
the six months ended 30 June 2021 have been prepared in accordance
with IAS 34 Interim Financial Reporting as issued by the IASB and
as adopted by UK. All comparisons refer to the first halves of 2021
and 2020, unless otherwise noted. The financial information and
half year on half year variations are presented in US dollars,
except where indicated. Management recommends reading this section
in conjunction with the Interim Financial Statements and their
accompanying Notes.
INCOME STATEMENT
1H 2021 US$ million 1H 2020 US$ million Amount Change US$ million Change %
--------------------------------------- ------------------- ------------------- ------------------------- --------
Adjusted revenue [10] 1,543.1 1,125.1 418.0 37.1
--------------------------------------- ------------------- ------------------- ------------------------- --------
Total revenue 1,466.8 1,054.2 412.7 39.1
--------------------------------------- ------------------- ------------------- ------------------------- --------
Cost of sales (860.1) (733.0) (127.1) 17.3
--------------------------------------- ------------------- ------------------- ------------------------- --------
Gross profit 606.8 321.2 285.6 88.9
--------------------------------------- ------------------- ------------------- ------------------------- --------
Exploration expenses 60.9 50.7 (10.2) (20.0)
--------------------------------------- ------------------- ------------------- ------------------------- --------
Operating profit 471.9 216.9 255.0 117.6
--------------------------------------- ------------------- ------------------- ------------------------- --------
EBITDA [11] 747.0 469.9 277.1 59.0
--------------------------------------- ------------------- ------------------- ------------------------- --------
Income tax expense including special
mining rights 136.9 71.4 65.5 91.7
--------------------------------------- ------------------- ------------------- ------------------------- --------
Profit for the period 308.4 56.5 251.9 445.8
--------------------------------------- ------------------- -------------------
Profit for the period, excluding
post-tax Silverstream effects 311.2 78.8 232.4 294.9
--------------------------------------- ------------------- ------------------- ------------------------- --------
Basic and diluted earnings per share
(US$/share) (5) 0.410 0.088 0.322 365.9
--------------------------------------- ------------------- -------------------
Basic and diluted earnings per share,
excluding post-tax Silverstream
effects (US$/share) 0.414 0.118 0.296 250.8
--------------------------------------- ------------------- ------------------- ------------------------- --------
The Group's financial results are largely determined by the
performance of our operations. However, there are other factors
such as a number of macroeconomic variables, that lie beyond our
control and which affect financial results. These include:
METALS PRICES
The average realised silver price increased 57.3% from US$16.8
per ounce in 1H20 to US$26.4 per ounce in 1H21, while the average
realised gold price rose 6.7%, from US$1,676.8 per ounce in 1H20 to
US$1,789.2 per ounce in 1H21. Further, the average realised lead
and zinc by-product prices increased 22.9% and 43.8% against their
corresponding periods, to US$0.96 and US$1.31 per pound,
respectively.
MX$/US$ EXCHANGE RATE
The Mexican peso/US dollar spot exchange rate at 30 June 2021
was $19.80 per US dollar, compared to the exchange rate at 31
December 2020 of $19.95 per US dollar. The 0.73% spot revaluation
had a limited positive effect on the net monetary peso asset
position, which contributed to the US$2.9 million foreign exchange
gain recognised in the income statement.
The average spot Mexican peso/US dollar exchange rate
appreciated by 6.6% from $21.61 per US dollar in 1H20 to $20.18 per
US dollar in 1H21. As a result, there was an adverse effect of
US$19.5 million on the Group's costs denominated in Mexican pesos
(approximately 45% of total costs) when converted to US
dollars.
COST INFLATION
In 1H21, cost inflation was 8.56 %. The main components of our
cost inflation basket are listed below:
Labour
Unionised employees received on average a 6.5% increase in wages
in Mexican pesos, while non-unionised employees received on average
a 4.0% increase in wages in Mexican pesos; when converted to US
dollars, this resulted in a weighted average labour inflation of
13.1%.
Energy
Electricity
The weighted average cost of electricity in US dollars increased
18.3% from US$7.45 cents per kw in 1H20 to US$8.82 cents per kw in
the same period of 2021, reflecting an increase due to the higher
average generating cost of the Comisión Federal de Electricidad
(CFE), the national utility.
Diesel
The weighted average cost of diesel in US dollars increased
25.3% to 89.6 US cents per litre in 1H21, compared to 71.5 US cents
per litre in 1H20. This resulted mainly from the global economic
recovery following the sharp slowdown in trade in 1H20 due to the
Covid-19 pandemic.
Operating materials
Half on half change in unit price %
-------------------------------------------- -----------------------------------
Other reagents 4.5
-------------------------------------------- -----------------------------------
Steel balls for milling 3.3
-------------------------------------------- -----------------------------------
Steel for drilling 2.8
-------------------------------------------- -----------------------------------
Sodium cyanide 1.7
-------------------------------------------- -----------------------------------
Lubricants 0.8
-------------------------------------------- -----------------------------------
Tyres 0.8
-------------------------------------------- -----------------------------------
Explosives (1.2)
-------------------------------------------- -----------------------------------
Weighted average of all operating materials 1.1
-------------------------------------------- -----------------------------------
Unit prices of the majority key operating materials increased in
US dollar terms primarily driven by the higher demand for some of
these products as global mining activity recovered following the
adverse impact by Covid-19 as several mines and projects worldwide
continued to ramp up production. This was partly mitigated by a
decrease in the unit price of explosives. As a result, the weighted
average unit prices of all operating materials over the half
increased by 1.1%.
Contractors
Agreements are signed individually with each contractor company
and include specific terms and conditions that cover not only
labour, but also operating materials, equipment and maintenance,
amongst others. Contractor costs are mainly denominated in Mexican
pesos and are an important component of our total production costs.
In 1H21, increases per unit (i.e. per metre developed/ per tonne
hauled) granted to contractors, whose agreements were due for
review during the period, resulted in a weighted average increase
of 6.1% in US dollars, after considering the revaluation of the
Mexican peso vs. US dollar.
Maintenance
Unit prices of spare parts for maintenance increased by 4.2% on
average in US dollar terms.
Other costs
Other cost components include freight which increased by an
estimated 7.4% in US dollars, while insurance costs increased by
27.9% in US dollars mainly due to higher market premiums as a
result of Covid-19 claims. The remaining cost inflation components
experienced average deflation of 4.8% in US dollars over 1H20.
The effects of the above external factors, combined with the
Group's internal variables, are further described below through the
main line items of the income statement.
REVENUE
CONSOLIDATED REVENUE (1)
1H 2021 1H 2020 Amount
US$ million US$ million US$ million Change %
------------------------------- ------------ ------------ ------------ --------
Adjusted revenue ([12]) 1,543.1 1,125.1 418.0 37.2
------------------------------- ------------ ------------ ------------ --------
Metals prices hedging 0.0 1.5 (1.5) N/A
------------------------------- ------------ ------------ ------------ --------
Treatment and refining charges (76.2) (72.4) (3.8) (5.3)
------------------------------- ------------ ------------ ------------ --------
Total revenue 1,466.8 1,054.2 412.7 39.1
------------------------------- ------------ ------------ ------------ --------
Adjusted revenue increased by US$418.0 million mainly as a
result of the higher metal prices and increased volumes of all
metals sold. As a result, total revenue rose to US$1,466.8 million,
a 39.1% increase against 1H20.
ADJUSTED REVENUE [13] BY METAL
1H 2021 1H 2020
------------------ ------------------
Price Total net
Volume Variance Variance change
US$ million % US$ million% US$ million US$ million US$ million %
----------------------- ----------- ----- ----------- ---- --------------- ------------ ------------ ----
Gold 720.0 46.7 611.9 54.4 65.0 43.1 108.1 17.7
----------------------- ----------- ----- ----------- ----- --------------- ------------ ------------ ----
Silver 629.1 40.8 383.0 34.0 21.8 224.4 246.1 64.3
----------------------- ----------- ----- ----------- ----- --------------- ------------ ------------ ----
Lead 62.1 4.0 47.4 4.2 3.6 11.2 14.8 31.0
----------------------- ----------- ----- ----------- ----- --------------- ------------ ------------ ----
Zinc 131.8 8.5 82.9 7.4 10.7 38.2 48.9 59.0
----------------------- ----------- ----- ----------- ----- --------------- ------------ ------------ ----
Total adjusted revenue 1,543.1 100.0 1,125.1 100.0 101.1 316.9 418.0 37.2
----------------------- ----------- ----- ----------- ----- --------------- ------------ ------------ ----
Higher gold volumes sold were primarily due to the increased
volume of ore processed at Herradura and, to a lesser extent, a
higher ore grade at Saucito, while the higher silver volumes were
due to a higher ore grade at San Julián DOB and, to a lesser
extent, the contribution of development ore from Juanicipio (for
further detail, see 1H21 Operational Review).
Changes in the contribution by metal were the result of the
relative changes in metal prices and volumes produced. Gold
decreased its contribution to total adjusted revenues from 54.4% in
1H20 to 46.7% in 1H21, while silver increased its contribution from
34.0% in 1H20 to 40.8% in 1H21.
ADJUSTED REVENUE BY Mine
Herradura continued to be the greatest contributor to Adjusted
revenue, representing 29.1% (1H20: 31.1%) primarily due to the
higher volume of gold sold, in addition to the higher gold price.
Saucito's contribution remained broadly unchanged, increasing to
22.0% in 1H21 (1H20: 21.1%) driven by the higher silver price and
increased volumes of gold, lead and zinc sold at higher prices,
partly offset by the lower volume of silver sold. Fresnillo
remained the third most important contributor to Adjusted revenue,
decreasing its share to 15.9% (1H20: 16.1%). The contribution to
the Group's Adjusted revenue from the San Julián mine increased to
18.5% in 1H21 (1H20: 14.8%) primarily reflecting the increase in
volumes of silver sold as a result of the higher silver ore grade
at the Disseminated Ore Body. Ciénega's contribution to the Group's
Adjusted revenue decreased to 7.9% (1H20: 9.7%) as a result of the
lower gold and silver volumes sold, mitigated by the higher metal
prices. As expected, Noche Buena's contribution continued to
decrease from 7.2% in 1H20 to 4.9% in 1H21, primarily reflecting
the gradual depletion of the mine as it approaches the end of its
life. Now that Juanicipio is processing development ore through the
Fresnillo beneficiation plant, it is contributing to Adjusted
revenue for the first time, representing 1.5% of the Groups
total.
The contribution by metal and by mine to Adjusted revenues is
expected to change further in the future, as new projects are
incorporated into the Group's operations and as precious metals
prices fluctuate.
ADJUSTED REVENUE [14] BY MINE
1H 2021 1H 2020
------------------- -------------------
(US$ million) % (US$ million)%
------------------------ ------------- ---- ------------- ---
Herradura 449.7 29.1 349.5 31.1
------------------------ ------------- ---- ------------- ----
Saucito 338.9 22.0 237.8 21.1
------------------------ ------------- ---- ------------- ----
Fresnillo 245.9 15.9 181.7 16.1
------------------------ ------------- ---- ------------- ----
San Julián (DOB) 187.2 12.1 81.0 7.2
------------------------ ------------- ---- ------------- ----
Ciénega 121.9 7.9 109.0 9.7
------------------------ ------------- ---- ------------- ----
San Julián (Veins) 99.0 6.4 85.2 7.6
------------------------ ------------- ---- ------------- ----
Noche Buena 75.4 4.9 81.0 7.2
------------------------ ------------- ---- ------------- ----
Juanicipio 25.1 1.6 0.0 0.0
------------------------ ------------- ---- ------------- ----
Total 1,543.1 100 1,125.1 100
------------------------ ------------- ---- ------------- ----
VOLUMES OF METAL SOLD
% contribution % contribution
1H 2021 of each mine 1H 2020 of each mine % change
------------------------- ------- -------------- ------- -------------- --------
Silver (koz)
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 6,163 25.9% 6,234 27.3% (1.1)
------------------------- ------- -------------- ------- -------------- --------
Saucito 5,966 25.0% 6,885 30.2% (13.3)
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 5,680 23.8% 3,527 15.5% 61.0%
------------------------- ------- -------------- ------- -------------- --------
Ciénega 2,449 10.3% 2,668 11.7% (8.2)
------------------------- ------- -------------- ------- -------------- --------
San Julián (Veins) 1,934 8.1% 2,017 8.8% (4.1)
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 785 3.3% 0.0 0.0% N/A
------------------------- ------- -------------- ------- -------------- --------
Herradura 502 2.1% 808 3.5% (37.9)
------------------------- ------- -------------- ------- -------------- --------
Pyrites Plant at Saucito 332 1.4% 654 2.9% (49.2)
------------------------- ------- -------------- ------- -------------- --------
Noche Buena 8 0.0% 13 0.1% (38.5)
------------------------- ------- -------------- ------- -------------- --------
Total silver (koz) 23,817 22,806 4.4
------------------------- ------- -------------- ------- -------------- --------
Gold (oz)
------------------------- ------- -------------- ------- -------------- --------
Herradura 243,857 60.6% 201,820 55.3% 20.8
------------------------- ------- -------------- ------- -------------- --------
Saucito 46,714 11.6% 34,177 9.4% 36.7
------------------------- ------- -------------- ------- -------------- --------
Noche Buena 41,845 10.4% 47,789 13.1% (12.4)
------------------------- ------- -------------- ------- -------------- --------
San Julián (Veins) 26,766 6.7% 30,013 8.2% (10.8)
------------------------- ------- -------------- ------- -------------- --------
Ciénega 24,593 6.1% 29,954 8.2% (17.9)
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 14,881 3.7% 16,984 4.7% (12.4)
------------------------- ------- -------------- ------- -------------- --------
Pyrites Plant at Saucito 1,330 0.3% 2,467 0.7% (46.1)
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 1,273 0.3% 0.0 0.0% N/A
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 1,147 0.3% 579 0.2% 98.1
------------------------- ------- -------------- ------- -------------- --------
Total gold (oz) 402,405 364,879 10.3
------------------------- ------- -------------- ------- -------------- --------
Lead (t)
------------------------- ------- -------------- ------- -------------- --------
Saucito 14,199 48.2% 10,783 39.0% 31.7
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 8,638 29.3% 10,659 38.6% (19.0)
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 4,350 14.8% 3,207 11.6% 35.6
------------------------- ------- -------------- ------- -------------- --------
Ciénega 2,017 6.8% 2,968 10.7% (32.0)
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 272 0.9% 0.0 0.0% N/A
------------------------- ------- -------------- ------- -------------- --------
Total lead (t) 29,477 27,615 6.7%
------------------------- ------- -------------- ------- -------------- --------
Zinc (t)
------------------------- ------- -------------- ------- -------------- --------
Saucito 20,055 43.8% 14,585 35.2% 37.5
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 13,509 29.5% 15,199 36.7% (11.1)
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 8,757 19.1% 7,493 18.1% 16.9
------------------------- ------- -------------- ------- -------------- --------
Ciénega 3,085 6.7% 4,123 10.0% (25.2)
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 399 0.9% 0.0 0.0% N/A
------------------------- ------- -------------- ------- -------------- --------
Total zinc (t) 45,806 41,400 10.6
------------------------- ------- -------------- ------- -------------- --------
HEDGING
In the current period we entered into a hedging programme
executed for a total volume of 1,800,000 ounces of silver with
monthly settlements throughout 2021 until February of 2022. Similar
to last year's transaction, this was structured as a collar with an
average floor price of US$22 per ounce, and an average price
ceiling of US$50.33 per ounce.
Additionally, a portion of our expected by-product zinc
production for the remainder of 2021 and the first quarter of 2022
was hedged using a similar financial structure as with silver.
The table below illustrates the expired structures, their
results and the outstanding volume as of June 30th 2021.
Concept As of June As of June
30(th) 2021 30(th) 2021
Silver(1) Zinc(2)
------------- ----------------
Weighted Floor 20.44 usd/oz 2,491 usd/tonne
------------- ----------------
Weighted Cap 49.73 usd/oz 3,125 usd/tonne
------------- ----------------
Expired volume 2,724,000 oz 5,500 tonne
------------- ----------------
Profit/Loss (US$ dollars) 0 0
------------- ----------------
Total outstanding volume 3,324,000 oz 17,420 tonne
------------- ----------------
(1) Monthly settlements until February 2022
(2) Monthly settlements until April 2022
TREATMENT AND REFINING CHARGES
Similar to previous years, the 2021 treatment and refining
charges ([15]) (TRCs) per tonne and per ounce are currently being
negotiated with Met-Mex (Peñoles' smelter and refinery) in
accordance with international benchmarks and will apply
retrospectively from January 2021. We expect these negotiations to
conclude by October 2021. However, we accrued US$17.8 million
decrease to the charge (1H20: US$9.8 million increase to the
charge) for an expected change in treatment and refining charges in
these Interim Financial Statements to reflect current market
conditions which are expected to materialise once negotiations are
concluded.
Treatment charges per tonne of lead concentrate for the first
half increased in dollar terms by 29.0%, while zinc concentrate
treatment charges decreased in dollar terms by 28.5%. Furthermore,
silver refining charges increased by 9.0% over the corresponding
period in 2020. Through a combination of higher treatment charges
per tonne of lead and silver refining charges, combined with the
higher volumes of lead and zinc concentrates shipped from our mines
to Met-Mex, resulted in a 5.3% increase in treatment and refining
charges set out in the income statement in absolute terms when
compared to 1H20.
COST OF SALES
1H 2021 1H 2020 Amount
Concept US$ million US$ million US$ million Change %
------------------------------------------------------------------ ------------ ------------ ------------ --------
Adjusted production costs ([16]) 611.1 506.6 104.5 20.6
------------------------------------------------------------------ ------------ ------------ ------------ --------
Depreciation 265.4 251.7 13.7 5.4
------------------------------------------------------------------ ------------ ------------ ------------ --------
Profit sharing 12.3 7.8 4.5 57.5
------------------------------------------------------------------ ------------ ------------ ------------ --------
Hedging (3.8) (0.1) (3.7) >100
------------------------------------------------------------------ ------------ ------------ ------------ --------
Change in work in progress (25.8) (38.3) 12.5 (32.6)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Unproductive costs including inventory reversal and unabsorbed
production costs ([17]) 0.8 5.2 (4.3) (83.7)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cost of sales 860.1 733.0 127.1 17.3
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cost of sales increased 17.3% to US$860.1 million in 1H21. The
US$127.1 million increase is explained by the following combination
of factors:
-- An increase in Adjusted production costs (US$104.5 million).
This was primarily due to: i) a higher volume of ore processed at
Herradura following Covid-19 operational restrictions in 1H20
(US$52.8 million); ii) increased development and infrastructure
works at our underground mines, except for San Julián DOB (US$24.9
million); iii) cost inflation, excluding the Mexican peso vs. US
dollar revaluation effect (US$21.3 million); iv) the adverse effect
of the revaluation of the Mexican peso vs. US dollar (US$19.5
million) [18] and; v) costs from the start-up of operations at
Juanicipio (US$4.3 million). These adverse effects were mitigated
by a decreased volume of ore processed at Saucito, San Julián
(Veins and DOB) and Fresnillo (-US$14.3 million); and others
(-US$3.9 million).
-- The variation in the change in work in progress had a
negative effect of US$12.5 million versus 1H20. This resulted
mainly from recognising a smaller favourable effect from the
reassessment of recoverable gold inventories at the leaching pads
in 1H21 compared to the one recorded in 1H20, US$14.6 million in
1H21 vs. US$62.2 million in 1H20.
-- Depreciation (+US$13.7 million). This is mainly due to
increased amortisation of capitalised mining works and increased
depletion factors at Fresnillo and San Julián, in addition to the
higher depreciation at Herradura and Noche Buena as some equipment
was not in use during the preventive measures related to Covid-19
in 1H20.
-- Profit sharing (+US$4.5 million).
These negative effects were mitigated by:
-- Mexican peso/US dollar hedging (-US$3.7 million). As part of
our programme to manage our exposure to foreign exchange risk
associated with costs incurred in Mexican pesos, last year we
entered into a combination of put and call options structured at
zero cost (collars). These derivatives had their last expiration in
March of 2021 and they generated a positive result of US$3.8
million during the first quarter of 2021. As of June 30th 2021
there is no further outstanding position.
COST PER TONNE, CASH COST PER OUNCE AND ALL-IN SUSTAINING COST
(AISC)
Cost per tonne is a key indicator to measure the effects of
changes in production costs and cost control performance at each
mine. This indicator is calculated as total production costs, plus
ordinary mining rights, less depreciation, profit sharing and
exchange rate hedging effects, divided by total tonnage processed.
We have included cost per tonne hauled/moved as we believe it is a
useful indicator to thoroughly analyse cost performance for the
open pit mines.
Cost per tonne 1H 2021 1H 2020 % change
---------------------------------------------- ------- ------- --------
Fresnillo US$/tonne milled 79.95 65.60 21.9
------------------------ -------------------- ------- ------- --------
Saucito US$/tonne milled 76.27 70.34 8.4
------------------------ -------------------- ------- ------- --------
San Julián (Veins) US$/tonne milled 78.73 70.03 12.4
------------------------ -------------------- ------- ------- --------
San Julián (DOB) US$/tonne milled 39.81 37.89 5.1
------------------------ -------------------- ------- ------- --------
Ciénega US$/tonne milled 83.52 72.98 14.4
------------------------ -------------------- ------- ------- --------
Herradura US$/tonne deposited 19.47 18.54 5.0
------------------------ -------------------- ------- ------- --------
Herradura US$/tonne hauled 3.36 2.86 17.5
------------------------ -------------------- ------- ------- --------
Noche Buena US$/tonne deposited 11.27 13.74 (18.0)
------------------------ -------------------- ------- ------- --------
Noche Buena US$/tonne hauled 3.15 2.91 8.2
------------------------ -------------------- ------- ------- --------
Fresnillo: Cost per tonne increased 21.9% to US$80.0 in 1H21,
mainly driven by an increase in development costs. Additionally,
cost inflation of 11.5%, including the adverse effect of the
revaluation of the Mexican peso vs. the US dollar, drove the cost
per tonne higher period-on-period.
Saucito: Cost per tonne increased 8.4% to US$76.3, mainly due to
an increase in development and maintenance costs, cost inflation of
6.3%, including the adverse effect of the revaluation of the
Mexican peso vs. the US dollar. This was mitigated by the decrease
in consumption of operating materials at the pyrites plant.
San Julián Veins: C ost per tonne increased 12.4% to US$78.7,
mainly due to the increase in contractor costs to advance mine
infrastructure and cost inflation of 5.3%, including the adverse
effect of the revaluation of the Mexican peso vs. the US
dollar.
San Julián (DOB): Cost per tonne increased 5.1% to $39.8, mainly
due to cost inflation of 5.3%, including the adverse effect of the
revaluation of the Mexican peso vs. the US dollar.
Ciénega: Cost per tonne increased 14.4% to US$83.5 driven by an
increase in development costs. Additionally, cost inflation of
7.6%, including the adverse effect of the revaluation of the
Mexican peso vs. the US dollar.
Herradura: Cost per tonne of ore deposited increased by 5.0% to
$19.5, primarily due to a cost inflation of 10.3, including the
adverse effect of the revaluation of the Mexican peso vs. the US
dollar, and the adverse effect of recognising unproductive costs
within cost of sales but excluded from adjusted production costs
during the temporary suspension of mining activities at the
beginning of the COVID-19 pandemic in 1H20. This was mitigated by
the increased volume of ore processed and recaptured economies of
scale half-on-half.
Noche Buena: Cost per tonne at this mine decreased 18.0% to
US$11.3 in 1H21, due to the lower consumption of explosives, in
addition to the lower equipment maintenance and repair work. This
was partially offset by cost inflation of 8.3%, including the
adverse effect of the revaluation of the Mexican peso vs. the US
dollar and the adverse effect of recognising unproductive costs
from the suspension of mining activities at the beginning of the
COVID-19 pandemic within cost of sales but excluded from adjusted
production costs in 1H20.
Cash cost per ounce, calculated as total cash cost (cost of
sales plus treatment and refining charges, less depreciation) less
revenue from by-products divided by the silver or gold ounces sold,
when compared to the corresponding metal price, is an indicator of
the ability of the mine to generate competitive profit margins.
Cash cost per ounce 1H 2021 1H 2019 % change
----------------------------------------------- -------- -------- --------
Fresnillo US$ per silver ounce 6.41 4.86 31.89
------------------------ --------------------- -------- -------- --------
Saucito US$ per silver ounce -4.37 1.19 N/A
------------------------ --------------------- -------- -------- --------
San Julián (Veins) US$ per silver ounce -0.48 -2.67 82.02
------------------------ --------------------- -------- -------- --------
San Julián (DOB) US$ per silver ounce 4.66 8.65 -46.13
------------------------ --------------------- -------- -------- --------
Ciénega US$ per gold ounce -606.99 -84.59 617.57
------------------------ --------------------- -------- -------- --------
Herradura US$ per gold ounce 756.42 573.04 32.0
------------------------ --------------------- -------- -------- --------
Noche Buena US$ per gold ounce 1,235.33 1,100.81 12.2
------------------------ --------------------- -------- -------- --------
Fresnillo: Cash cost per silver ounce increased to US$6.4 (1H20:
US$4.9 per silver ounce) principally due to higher cost per tonne,
mitigated by the higher by-product credits and to a lesser extent,
higher silver ore grade.
Saucito: Cash cost per silver ounce decreased to -US$4.4 per
ounce (1H20: US$1.2 per silver ounce) mainly as a result of higher
gold, lead and zinc by-product credits per silver ounce. This was
partially offset by a lower silver ore grade, an increase in cost
per tonne and higher treatment and refining charges.
San Julián Veins: Cash cost per ounce of silver increased mainly
due to the higher cost per tonne and lower ore grade.
San Julián (DOB): Cash cost decreased 46.1% to US$4.7 per ounce
of silver driven by a higher silver ore grade, partially offset by
the higher cost per tonne and increased special mining rights.
Ciénega: The decrease in cash cost per gold ounce from -US$84.6
per ounce in 1H20 to -US$607.0 per ounce in 1H21 was primarily due
to an increase in silver, zinc and lead by-product credits. This
was partly offset by a lower gold ore grade and higher treatment
and refining charges.
Herradura: Cash cost per gold ounce increased to US$756.4 per
ounce of gold mainly as a result of: i) recognising a smaller
favourable effect from the reassessment of recoverable gold
inventories at the leaching pads in 1H21 compared to the one
recorded in 1H20, thus resulting in a higher cost per ounce; ii) a
lower speed of recovery; and to a lesser extent, iii) higher cost
per tonne..
Noche Buena: Cash cost per gold ounce increased by 12.2% to
US$1,235.33, mainly due to a lower gold ore grade. This was
mitigated by a lower cost per tonne.
In addition to the traditional cash cost, the Group is reporting
All-In Sustaining Cost (AISC) in accordance with the guidelines
issued by the World Gold Council.
This cost metric is calculated as traditional cash cost plus
on-site general, corporate and administrative costs, community
costs related to current operations, capitalised stripping and
underground mine development, sustaining capital expenditures and
remediation expenses.
We consider AISC to be a reasonable indicator of a mine's
ability to generate free cash flow when compared with the
corresponding metal price. We also believe it is a means to monitor
not only current production costs, but also sustaining costs as it
includes mine development costs incurred to prepare the mine for
future production, as well as sustaining capex.
ALL-IN SUSTAINING COST (AISC)
AISC 1H 2021 1H 2020 % change
----------------------------------------------- -------- -------- --------
Fresnillo US$ per silver ounce 14.45 11.14 29.7
------------------------ --------------------- -------- -------- --------
Saucito US$ per silver ounce 3.46 6.07 (43.0)
------------------------ --------------------- -------- -------- --------
San Julián (Veins) US$ per silver ounce 11.48 5.19 121.4
------------------------ --------------------- -------- -------- --------
San Julián (DOB) US$ per silver ounce 6.01 10.10 (40.5)
------------------------ --------------------- -------- -------- --------
Ciénega US$ per gold ounce 405.67 613.93 (33.9)
------------------------ --------------------- -------- -------- --------
Herradura US$ per gold ounce 874.4 664.74 31.5
------------------------ --------------------- -------- -------- --------
Noche Buena US$ per gold ounce 1,497.08 1,148.11 30.4
------------------------ --------------------- -------- -------- --------
Fresnillo: All-in sustaining cost increased 29.7% over 1H20 to
US$14.5, explained by a higher cash cost and higher sustaining
capex per ounce.
Saucito: All-in sustaining cost decreased to US$3.5 per ounce
due to the lower cash cost, partly offset by the higher sustaining
capex per ounce and higher freights, third parties and mining
rights.
San Julián Veins: All in sustaining cost at San Julián veins
increased to US$11.5 per ounce due to higher capitalised mine
development and, to a lesser extent, an increase in cash cost .
San Julián DOB: The 40.5% decrease in all in sustaining cost was
mainly driven by the lower cash cost.
Ciénega: The US$208.3 per ounce decrease in all in sustaining
cost was primarily driven by the lower cash cost, partly offset by
the higher sustaining capex per ounce.
Herradura: All-in sustaining cost increased by US$209.7 per
ounce (+31.5%) mainly due to the higher cash cost and higher
sustaining capex per ounce.
Noche Buena: The US$349.0 per ounce increase in all-in
sustaining cost was the result of the higher cash cost, and to a
lesser extent, higher capitalised stripping.
GROSS PROFIT
Gross profit, excluding hedging gains and losses, is a key
financial indicator of profitability at each business unit and the
Fresnillo Group as a whole.
Total gross profit, including hedging gains and losses,
increased by 88.9% from US$321.2 million in 1H20 to US$606.8
million in 1H21.
The US$285.6 million increase in gross profit was mainly
explained by: i) the favourable effect of higher average realised
gold, silver, lead and zinc prices (US$316.9 million); ii) net
effect of higher ore grades (US$91.5 million); iii) the positive
effect from processing development ore from our new Juanicipio mine
(US$16.4 million) and; iv) net effect of higher volumes processed
(US$6.3 million). These positive effects were partially offset by:
i) the smaller favourable effect from the reassessment of
recoverable gold inventories at the leaching pads in 1H21 compared
to the one recorded in 1H20 (-US$49.7 million); ii) an increase in
cost related to development works at Ciénega, Saucito, and
Fresnillo (-US$22.6 million); iii) cost inflation (-US$21.3
million); iv) the adverse effect of the revaluation of the Mexican
peso vs. US dollar (-US$19.5 million); v) higher depreciation
(-US$13.7 million); vi) the adverse effect of the variation of
change in inventories at Noche Buena, San Julián and Saucito
(-US$11.7 million) and; vii)) others (-US$6.9 million).
With the exception of Noche Buena, gross profit increased
half-on-half at all mines. Herradura remained the largest
contributor to the Group's consolidated gross profit despite
recording a decrease in its percentage share from 56.0% in 1H20 to
35.0% in 1H21. Gross profit at Saucito and Fresnillo experienced
triple digit increases; with their percentage shares increasing to
25.1% and 14.7% in 1H21 respectively as a result of their relative
weighting. The higher grades at San Julián (DOB) together with the
higher precious metals prices resulted in a US$110.2 million gross
profit in 1H21, representing the largest percentage share increase
of the Group's total gross profit across all mines, increasing from
0.8% in 1H20 to 19.0% in 1H21. Ciénega's share of the Group's total
gross profit decreased to 5.1% in 1H21, while Noche Buena's
contribution continued to decrease as it approaches the end of its
mine life. Notwithstanding, Noche Buena generated an EBITDA and
cash flow from operating activities of US$21.0 million and US$19.5
million, respectively, recording a US$6.7 million gross profit.
CONTRIBUTION BY MINE TO CONSOLIDATED GROSS PROFIT, EXCLUDING
HEDGING GAINS AND LOSSES
1H 2021 1H 2020 Change
----------------- ----------------- --------------------
US$ million % US$ million% US$ million %
------------------------------------- ----------- ---- ----------- --- ----------- -------
Herradura 203.6 35.0 179.3 56.0 24.3 13.6
------------------------------------- ----------- ---- ----------- ---- ----------- -------
Saucito 145.9 25.1 59.1 18.5 86.8 146.9
------------------------------------- ----------- ---- ----------- ---- ----------- -------
San Julián 110.2 19.0 2.5 0.8 107.7 4,308.0
------------------------------------- ----------- ---- ----------- ---- ----------- -------
Fresnillo 85.3 14.7 36.2 11.3 49.1 135.6
------------------------------------- ----------- ---- ----------- ---- ----------- -------
Ciénega 29.5 5.1 22.8 7.1 6.7 29.4
------------------------------------- ----------- ---- ----------- ---- ----------- -------
Noche Buena 6.7 1.1 20.0 6.3 (13.3) (66.5)
------------------------------------- ----------- ---- ----------- ---- ----------- -------
Total for operating mines 581.2 100 319.9 100 261.3 81.6
------------------------------------- ----------- ---- ----------- ---- ----------- -------
Metal hedging and other subsidiaries 25.6 1.2 24.4 2,033.3
------------------------------------- ----------- ---- ----------- ---- ----------- -------
Total Fresnillo plc 606.8 321.2 285.6 88.9
------------------------------------- ----------- ---- ----------- ---- ----------- -------
ADMINISTRATIVE AND CORPORATE EXPENSES
Administrative and corporate expenses increased 22.5% from
US$41.8 million in 1H20 to US$51.2 million in 1H21, due to an
increase in fees paid to advisors (legal, labour, tax and
technical), the increase in non-recurring corporate services
provided by Servicios Industriales Peñoles S.A.B. de C.V. and the
adverse effect of the revaluation of the Mexican peso vs. the US
dollar.
EXPLORATION EXPENSES
Business unit/project (US$ Exploration expenses 1H Exploration Capitalised expenses 1H Capitalised
million) 2021 expenses 1H 2020 2021 expenses 1H 2020
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Ciénega 2.6 3.0 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Fresnillo 3.0 3.3 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Herradura 3.0 4.0 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Saucito 4.7 7.4 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Noche Buena 0.4 0.0 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
San Julián 11.1 6.6 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Orisyvo 1.6 1.6 0.1 -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Centauro Deep 0.0 0.0 - 4.5
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Guanajuato 3.1 2.3 0.3 -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Juanicipio 0.0 0.0 2.7 1.8
-------------------------- ------------------------- ----------------- ------------------------- -----------------
San Ramón 0.3 0.0 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Others 31.0 22.5 0.2 -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Total 60.9 50.7 3.3 6.3
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Exploration expenses increased, as expected, by 20.0% from
US$50.7 million in 1H20 to US$60.9 million in 1H21, in line with
the budget for this year and our strategy to focus exploration on
specific targets, mainly at our Fresnillo and San Julián districts.
The increase of US$10.2 million seen period-on-period was due to
our intensified exploration activities aimed at increasing the
resource base, converting resources into reserves and improving the
confidence of the grade distribution in reserves. An additional
US$3.3 million was capitalised, mainly relating to exploration
expenses at the Juanicipio project. As a result, risk capital
invested in exploration totalled US$64.2 million in 1H21, while in
1H20, US$6.3 million was capitalised, totalling US$57.1 million in
risk capital invested in exploration, a 12.4% increase over 1H20.
For the remainder of 2021, total invested in exploration is
expected to remain within the range of US$175-US$180 million, of
which approximately US$15 million is expected to be
capitalised.
EBITDA
1H 2021 1H 2020 Amount
US$ million US$ million US$ million Change %
---------------------------------------------------- ------------ ------------ ------------ --------
Profit from continuing operations before income tax 445.4 127.9 317.5 248.3
---------------------------------------------------- ------------ ------------ ------------ --------
- Finance income (5.6) (9.5) 3.9 (41.0)
---------------------------------------------------- ------------ ------------ ------------ --------
+ Finance costs 31.0 25.7 5.3 20.6
---------------------------------------------------- ------------ ------------ ------------ --------
- Revaluation effects of Silverstream contract 4.0 31.8 (27.8) (87.4)
---------------------------------------------------- ------------ ------------ ------------ --------
- Foreign exchange gain (loss), net (2.9) 41.0 (43.9) N/A
---------------------------------------------------- ------------ ------------ ------------ --------
- Other operating income (2.8) (5.7) 2.9 50.9
---------------------------------------------------- ------------ ------------ ------------ --------
+ Other operating expense 12.5 7.1 5.4 76.1
---------------------------------------------------- ------------ ------------ ------------ --------
+ Depreciation 265.4 251.7 13.7 5.4
---------------------------------------------------- ------------ ------------ ------------ --------
EBITDA 747.0 469.9 277.1 59.0
---------------------------------------------------- ------------ ------------ ------------ --------
EBITDA margin 50.9% 44.6%
---------------------------------------------------- ------------ ------------ ------------ --------
EBITDA is a gauge of the Group's financial performance and a key
indicator to measure debt capacity. It is calculated as profit for
the year from continuing operations before income tax, less finance
income, plus finance costs, less foreign exchange gain / (loss),
less the net Silverstream effects and other operating income plus
other operating expenses and depreciation. In 2021, EBITDA
increased 59.0% to US$747.0 million primarily driven by the higher
gross profit and, partly offset by higher exploration and
administrative expenses. As a result, EBITDA margin expressed as a
percentage of revenue increased, from 44.6% in 1H20 to 50.9% in
1H21.
OTHER OPERATING INCOME AND EXPENSE
In 1H21, a net loss of US$9.8 million was recognised in the
income statement mainly as a result remediation work at Saucito
following the presence of high temperature water in an underground
production area in 2Q21, maintenance costs of closed mines and
remediation works for a tailings facility at Fresnillo.
SILVERSTREAM EFFECTS
The Silverstream contract is accounted for as a derivative
financial instrument carried at fair value. The net Silverstream
effect recorded in the 1H21 income statement was a loss of US$4.0
million (US$21.1 million amortisation profit and US$25.1 million
revaluation loss), which compared positively to the net loss of
US$31.8 million registered in 1H20. The negative revaluation was
mainly driven by the increase in the LIBOR reference rate; and a
decrease in the production plan due to silver resources update;
partially compensated by inflation and exchange rate forecasts and
a slight increase in the forward silver price curve.
Since the IPO, cumulative cash received has been US$709.8
million vs. US$350 million initially paid. The Group expects that
further unrealised gains or losses related to the valuation of the
Silverstream will be taken to the income statement in accordance
with silver price cyclicality or changes in the variables
considered in valuing this contract. Further information related to
the Silverstream contract is provided in the balance sheet section
in notes 10 and 18 to the consolidated financial statements.
NET FINANCE COSTS
Net finance costs of US$25.4 million compared unfavourably to
the US$16.2 million recorded in 1H20. Financial expenses in 1H21
included mainly: i) interest paid on the outstanding US$317.9
million from the US$800 million Senior Notes due 2023, and ii)
interest paid on the 4.250% Senior Notes due 2050. In 1H20,
financial expenses mainly reflected the interest paid on the US$800
million Senior Notes due 2023.
FOREIGN EXCHANGE
A foreign exchange gain of US$2.9 million was recorded as a
result of the 0.73% revaluation of the Mexican peso against the US
dollar over the period. This compared favourably to the US$41.0
million loss in 1H20.
The Group also enters into certain exchange rate derivative
instruments as part of a program to manage its exposure to foreign
exchange risk associated with the purchase of equipment denominated
in Euro (EUR) and Swedish krona (SEK). As of June 30th 2021, the
total EUR and SEK outstanding net forward position was EUR 9.46
million and SEK 5.05 million with maturity dates through March
2022. Volumes that expired during the first half of 2021 were EUR
2.52 million with a weighted average strike of 1.1960 USD/EUR and
SEK 15.26 million with a weighted average strike of 8.6605 SEK/USD,
which have generated a marginal result in the period of US$0.088
million.
TAXATION
Income tax expense for the period was US$111.1 million, which
compared unfavourably vs. US$62.0 million in 1H20. The effective
tax rate, excluding the special mining rights, was 24.9%, which was
below the 30% statutory tax rate. The reason for the lower
effective tax rate was the significant permanent differences
between the tax and the accounting treatment related mainly to: i)
the revaluation of the Mexican peso, which had an important impact
on the tax value of assets and liabilities that are denominated in
Mexican pesos; ii) the inflation rate (Mexican Consumer Price
Index), which impacted the inflationary uplift of the tax base for
assets and liabilities; and iii) the benefit from the lower border
zone tax which applied to Herradura and Noche Buena operations.
The effective tax rate in 1H20 was 48.5% mainly due to the
devaluation of the Mexican peso, which had an important impact on
the tax value of assets and liabilities denominated in Mexican
pesos.
Mining rights for the first half of the year were US$25.8
million compared to US$9.4 million charged in 1H20 due to higher
profit levels
PROFIT FOR THE PERIOD
Profit for the period increased from US$56.5 million in 1H20 to
US$308.4 million in 1H21, a 445.8% increase period-on-period as a
result of the factors described above.
Excluding the effects of the Silverstream contract, profit for
the year increased from US$78.8 million to US$311.2 million, a
294.9% increase.
CASH FLOW
A summary of the key items from the cash flow statement is set
out below:
1H 2021 1H 2020 Amount
US$ million US$ million US$ million Change %
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cash generated by operations before changes in working capital 750.4 456.2 294.2 64.5
------------------------------------------------------------------ ------------ ------------ ------------ --------
Decrease in working capital 15.1 37.3 (22.2) (59.5)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Taxes and employee profit sharing paid (253.5) (71.0) (182.5) 256.9
------------------------------------------------------------------ ------------ ------------ ------------ --------
Net cash from operating activities 512.0 422.5 89.5 21.2
------------------------------------------------------------------ ------------ ------------ ------------ --------
Proceeds from the layback agreement 25.0 0.0 25.0 100
------------------------------------------------------------------ ------------ ------------ ------------ --------
Silverstream contract 22.5 13.1 9.3 70.9
------------------------------------------------------------------ ------------ ------------ ------------ --------
Purchase of property, plant and equipment (256.8) (182.0) (74.8) 41.1
------------------------------------------------------------------ ------------ ------------ ------------ --------
Dividends paid to shareholders of the Company (172.6) (87.7) (84.9) 96.7
------------------------------------------------------------------ ------------ ------------ ------------ --------
Financial expenses and foreign exchange effects (18.2) (8.4) (9.7) 115.4
------------------------------------------------------------------ ------------ ------------ ------------ --------
Net increase in cash during the period after foreign exchange
differences 132.5 178.1 (45.6) (25.6)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cash and other liquid funds at 30 June [19] 1,202.9 514.7 688.2 133.7
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cash generated by operations before changes in working capital
increased by 64.5% to US$750.4 million, mainly as a result of the
higher profits generated in the year. Working capital decreased
US$15.1 million, mainly due to: i) an increase in accounts payable
of US$28.3 million; ii) a US$9.3 million decrease in trade and
other receivables; and iii) a US$2.0 million decrease in
prepayments; partially offset by an increase in inventories of
US$24.5 million.
Taxes and employee profit sharing paid increased 256.9% over
1H20 to US$253.5 million mainly due to: i) an increase in
provisional tax payments resulting from the higher profit factor
determined to calculate the estimated taxable income; ii) higher
final income tax paid in 1H21, net of provisional taxes paid
(corresponding to the 2020 tax fiscal year); iii) an increase in
mining rights; and iv) higher profit sharing paid.
As a result of the above factors, net cash from operating
activities increased 21.2% from US$422.5 million in 1H20 to
US$512.0 million in 1H21.
The Group received other sources of cash including; i) note
payable by minority shareholders in subsidiaries of US$23.7 million
and; ii) the proceeds of the Silverstream contract of US$22.5
million.
Furthermore, in December 2020, the Group entered into multiple
contracts with Orla Mining Ltd., granting Orla the right to expand
the Camino Rojo oxide pit onto Fresnillo's mineral concession. The
effectiveness of the agreement was subject to the approval of the
Mexican Federal Competition Commission (COFECE), which was granted
in February 2021, at which time, a payment of US$25.0 million was
made to Fresnillo plc (See note 2 to the consolidated financial
statements).
Main uses of funds were:
i) the purchase of property, plant and equipment for a total of
US$256.8 million, a 41.1% increase over 1H20. The Group has reduced
its estimated capex from US$680 million to approximately US$580
million to reflect the lower rate of capital deployment at our
different mines and projects. Capital expenditures for 1H21 are
described below:
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
1H 2021
US$ million
------------------------------------------------ ------------ ----------------------------------------------------
Fresnillo mine 43.7 Mine development and mining works, purchase of
in-mine equipment, deepening of the San Carlos
shaft and tailings dam.
------------------------------------------------ ------------ ----------------------------------------------------
Saucito mine 36.5 Mine development, purchase of in-mine equipment,
deepening of the Jarillas shaft and tailings dam.
------------------------------------------------ ------------ ----------------------------------------------------
San Julián Veins and DOB 20.2 Mining works and purchase of in-mine equipment.
------------------------------------------------ ------------ ----------------------------------------------------
Ciénega mine 20.5 Mining works, purchase of in-mine equipment and
construction of tailings dam.
------------------------------------------------ ------------ ----------------------------------------------------
Herradura mine 27.7 Construction of leaching pad and purchase of
equipment for dynamic leaching plants.
------------------------------------------------ ------------ ----------------------------------------------------
Noche Buena mine 0.3 Sustaining capex and capitalised stripping
------------------------------------------------ ------------ ----------------------------------------------------
Juanicipio project 85.9 Mine development and construction of beneficiation
plant
------------------------------------------------ ------------ ----------------------------------------------------
Other 22.0 Minera Bermejal.
------------------------------------------------ ------------ ----------------------------------------------------
Total purchase of property, plant and equipment 256.8
------------------------------------------------ ------------ ----------------------------------------------------
ii) Dividends paid to shareholders of the Group in 1H21 totalled
US$172.6 million, a 96.7% increase over 1H20 as a result of the
2020 final dividend of 23.5 cents per share paid in June 2021, in
line with our dividend policy.
iii) Financial expenses and foreign exchange effects of US$18.2
million increased US$9.7 million period-on-period. Financial
expenses in 1H21 included: i) interest paid on the outstanding
US$317.9 million from the US$800 million Senior Notes due 2023, and
ii) interest paid on the 4.250% Senior Notes due 2050. In 1H20,
financial expenses mainly reflected the interest paid on the US$800
million Senior Notes due 2023.
The sources and uses of funds described above resulted in an
increase in net cash of US$132.5 million (net increase in cash and
other liquid assets), which combined with the US$1,070.4 million
balance at the beginning of the year resulted in cash and other
liquid assets of US$1,202.9 million at the end of June 2021.
BALANCE SHEET
Fresnillo plc continued to maintain a solid financial position
during the period with cash and other liquid funds ([20]) of
US$1,202.9 million as of 30 June 2021, increasing 12.4% versus 31
December 2020 and 133.7% versus 30 June 2020. Taking into account
the cash and other liquid funds of US$1,202.9 million and the
US$1,167.8 million outstanding Senior Notes, Fresnillo plc's net
cash was US$35.1 million as at 30 June 2021. This compares to the
net debt position of US$97.4 million as at 31 December 2020.
Considering these variations, the balance sheet at 30 June 2021
remains strong, with a net debt / EBITDA ratio of -0.02x ([21])
Inventories remained broadly unchanged at US$444.1 million.
Trade and other receivables increased 6.0% to US$543.9
million.
The change in the value of the Silverstream derivative from
US$576.1 million at the end of the 2020 to US$549.5 million as of
30 June 2021 reflects proceeds of US$22.5 million in the period
(US$14.8 million in cash and US$7.8 million in accounts
receivables) and the Silverstream revaluation effect in the income
statement of US$4.0 million.
The net book value of property, plant and equipment was
US$2,696.8 million at the end of June, representing a 0.4% decrease
over 31 December 2020. The US$11.4 million decrease was mainly due
to increased depreciation.
The Group's total equity was US$3,750.2 million as of 30 June
2021, a 3.8% increase over 31 December 2020. This was mainly
explained by the increase in retained earnings, reflecting the 1H21
profit.
GOING CONCERN
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out above in the Operational Review, with further detail in
the Annual Report 2020. The financial position of the Group, its
cash flows and liquidity position are described in the Financial
Review. In addition, the Group's objectives, policies and processes
for managing its capital; its financial risk management objectives;
and its exposures to credit risk and liquidity risk were set out in
the Annual Report 2020. Details of its financial instruments and
hedging activities as at 30 June 2021 are set out in note 18 to the
interim report.
In making their assessment of the Group's ability to manage its
future cash requirements, the Directors have considered the Company
and Group budgets and the cash flow forecasts for the period to
31st December 2022. In addition, they reviewed a more conservative
cash flow scenario with reduced silver and gold prices of US$21.1
and US$1,568 respectively throughout this period, whilst
maintaining current budgeted expenditure while only considering
projects approved by the Executive Committee. This resulted in our
current cash balances reducing over time but maintaining sufficient
liquidity throughout the period.
The Directors have further calculated prices (US$11.6 and US$823
for silver and gold respectively), which should they prevail to the
end of 2022 would result in cash balances decreasing to minimal
levels by the end of 2022, without applying mitigations.
Should metal prices remain below the stressed prices above for
an extended period, management have identified specific elements of
capital and exploration expenditures which could be deferred
without adversely affecting production profiles throughout the
period. Finally management could amend the mining plans to
concentrate on production with a higher margin in order to
accelerate cash generation without affecting the integrity of the
mine plans.
Additionally, the Directors reviewed scenarios that incorporated
an estimated potential impact of the same severe but plausible
Covid-19 restrictions that were considered in the 2020 year end
going concern assessment (Covid Overlay). Further detail about this
overlay is set out in the going concern statement and viability
assessment disclosure in the 2020 Annual Report.
After reviewing all of the above considerations, the Directors
have a reasonable expectation that management have sufficient
flexibility in adverse circumstances to maintain adequate resources
to continue in operational existence for the next eighteen months.
The Directors, therefore, continue to adopt the going concern basis
of accounting in preparing the annual financial statements.
DIVIDS
The Board of Directors has declared an interim dividend of 9.90
US cents per Ordinary Share totalling US$73.0 million, which will
be paid on 15 September 2021 to shareholders on the register on 13
August 2021. 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 higher profit in
1H21, 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% relating to the payment of dividends, including to foreign
nationals.
Historically the Company has been making dividend payments out
of retained earnings generated before the tax reform came into
force and no withholding tax has therefore been applied. Dividend
payments relating to 2021 and future years will attract the
withholding obligation. However, foreign shareholders may be able
to recover such tax depending on their tax residence and the
existence of double taxation agreements.
MANAGING OUR RISKS AND OPPORTUNITIES WITH RESILIENCE
Managing risks and uncertainty is an integral part of
successfully delivering on our strategic objectives. We have
embedded a global risk management
framework across Fresnillo which aims to ensure consistency and
the application of the appropriate level of oversight at all
times.
I. How we manage risk.
As we explained in our 2020 Annual Report, the Company ended
2020 having made good progress in risk management, including
implementing actions that mitigated our most important risks. In
parallel, the Enterprise Risk Management (ERM) team developed a
training programme focused on identifying and mitigating emerging
risks and our TCFD framework, which was rolled out across the
business to raise awareness of our risk culture. During this
current year, we are continuing to enhance our risk framework by
increasing the use of metrics and scenarios to more precisely
articulate the risk appetite and tolerance limits within which we
wish to operate.
During the first part of 2021, our risk team focused its efforts
on identifying and assessing emerging risks, business continuity
risks and climate change risks according to the TCFD criteria. For
the second part of the year, we will be assessing fraud, compliance
and internal control risks.
II. Assessment of Principal Risks for the first half of the year
2021.
Due to the continuing impact of the global COVID-19 pandemic, it
was necessary to re-evaluate the Principal Risks set out in the
2020 Annual Report, to rethink their relative importance,
probability and impact and to re-assess the corresponding
mitigation actions.
As a result of this analysis, the ERM team recommended that the
impact of COVID-19 continues to be recognised on Fresnillo's
existing 12 Principal Risks and not as a standalone risk.
Consistent with the 2020 year end, the Principal Risks most
exposed during the first half of the year are as follows: 1)
"Potential actions by the Government", 2) "Impact of metals prices
and global macroeconomic developments" and 3) "Security".
Principal risks Risk description Factors contributing to risk Mitigation actions
Potential actions Regulatory actions can -Labour Subcontracting -Commitment to
by the Government have an adverse impact Reform constant
on the Company. These which prevents outsourcing, communication with all
could include stricter thus complicating: i) the levels of government.
environmental relationship
regulations, with contractors and ii) -Increased monitoring
forms of procurement or the of the processes being
explosives, more hiring of specialised implemented at the
challenging technicians Ministry
permit processes, more to advise on the of Labour and Economy.
onerous tax compliance development
obligations for us and of projects and the -We are in the process
our contractors, as well assimilation of carrying out an
as more frequent reviews of new technologies analysis
by tax authorities. of the Group's current
-The United structure and
The right of indigenous States-Mexico-Canada operating
communities to be Agreement (USMCA or TMEC) model vs. the new
consulted with requirements
regarding mining new labour dispositions. to identify any
concessions changes
could potentially affect -The implementation of that would be deemed
the granting of new policies necessary and
concessions by the Government that assessing
in Mexico. support their impact on the
the emission of coal into Group's operating and
The federal government the financial performance.
aims to discourage the atmosphere and reduce the
generation of energy development -We remain alert to
based of renewable energies. the changes proposed
on clean sources and to by the authorities,
encourage that from fuel -The federal government including energy and
oil and coal. recently mining tax
purchased a refinery to initiatives,
The government could produce so that we can respond
demand gasoline and diesel in in a timely and
the shutdown of Houston, relevant
operations USA. This acquisition manner.
in Zacatecas and Sonora reinforces
due to increase in the strategy of encouraging -We continue to
COVID-19 the consumption of fossil collaborate
cases. fuels with other members of
and not promoting the the mining community
We paid special consumption through the Mexican
attention of clean or green energies. Mining Chamber to
to the following lobby
aspects: -New taxes and against any new
discrepancies harmful
--Government actions in the criteria used in taxes, royalties or
that audits regulations. We also
negatively impact the carried out by the tax support industry
mining industry. authority. lobbying
--Regulatory changes to efforts to improve the
mining rights and -The restriction on the general public's
adverse granting understanding
fiscal changes. of new mining concessions. of the mining
--Increase in the industry.
frequency -Potential adverse actions
of the reviews by the resulting -Follow-up and timely
tax authorities with from a change in government compliance with all
special in the states of Zacatecas, suggestions of the
focus on the mining Sonora and Chihuahua. health
industry. authorities about the
--Inability to obtain -Increase in the frequency pandemic of COVID-19.
necessary water of
concessions the reviews by the tax -We maintain a
because of government authorities register
control or private with special focus on the and control of
interests. mining vaccinated
--Failures/delays in industry. staff, and encourage
obtaining all staff to be
the required -As the population does not vaccinated
environmental consistently follow the as soon as possible.
permits. measures
to prevent COVID-19 and the
health authorities may fail
to effectively implement
the
COVID-19 vaccine programme,
further waves of COVID-19
could
lead to mine closures
materially
impacting our productivity.
---------------------------- ---------------------------- ----------------------------
Impact of metals The COVID-19 pandemic -A severe international -We constantly review
prices and global negatively impacted economic the price performance
macroeconomic developments economies slowdown, including of precious metals
across the world, negative such
including economic growth forecasts as gold and silver in
in Mexico, due to for order to react and
personnel Mexico. take
being instructed to action.
isolate -In 2021, the market
and disruptions to performance -We constantly seek
supply of gold and silver prices to maintain a broad
chains. Globally, has supplier base to
economies been volatile due to the ensure
came close to a complete slow a range of options for
standstill for more than progress in COVID-19 purchasing critical
five months. vaccination inputs and to reduce
worldwide and the global the likelihood of
Our operations, costs, macroeconomic shortages.
sales and profits, and slowdown.
potentially the economic -We focus on cost,
viability of projects -Disruptions in the value efficiencies
could be affected as a chain and capital discipline
result of: of critical inputs for our to deliver competitive
operations all-in sustaining
--A possible decrease such as spare parts ( cost.
in precious metals primarily
prices, delivered by land transport -We enhance cost
which is the main driver from the US and maritime competitiveness
of risk. The average transport by improving the
price from China and Europe) ; quality
of gold increased maintenance of the portfolio.
year-on-year teams/contractors to
(+6.7% compared to conduct
2020), necessary repairs and the
while the average price officials
of silver increased by not being able to travel
57.3%. and
inspect our growth projects
--General inflation in resulting in delays to
Mexico. This was 5.8% commencement.
in terms of Mexican peso
for the first half of -Increased operating costs
2021. due
to higher prices for
critical
inputs such as steel,
cyanide,
copper, diesel, haulage
equipment,
oxygen and truck tyres.
-
---------------------------- ---------------------------- ----------------------------
Security Our employees, contractors -Increased presence of -Our property security
and suppliers face the organised teams closely monitor
risk of theft, kidnapping, crime in the vicinities of the security situation,
extortion or damage due mining maintaining clear internal
to insecurity in some units, particularly in communications and
of the regions where we Fresnillo, coordinating
operate. Saucito, Juanicipio and work in areas of greater
Penmont. insecurity.
The influence and dispute
of territories by drug -A severe increase in the -We have adopted the
cartels, other criminal number following practices
elements and general of high impact crimes to manage our security
anarchy (homicide, risks and prevent and
in some of the regions kidnapping, extortion) in treat possible incidents:
where we operate, combined the
with our exploration regions where our mining -Close and constant
activities units communication with federal
and projects in certain are located. and state security
areas of drug deposit, authorities.
transfer or cultivation, -Consumption and sale of
makes working in these drugs -Regular interactions
areas a particular risk at the mining units, and meetings with the
to us. particularly National Guard.
in Saucito.
The Federal Government -An increase in the
created the Secretariat -Theft of assets in mining number of anti-doping
of Citizen Security and units tests at the start of
Protection as part of and/or during transfer. the day in the mining
the comprehensive strategy units.
to reduce insecurity. -Roadblocks or blockages on
It also created the the roads and/or highways -Frequent inspections
National near inside the mines to
Guard, mostly comprising the mining units. verify that drugs are
military personnel, with not consumed and sold.
the aim of combating
organised -Drug consumption
crime and drug cartels. prevention
Unfortunately, in most campaigns, with a focus
states the state or local on employees.
police are unprepared
and ill-equipped to combat -An increase in logistical
organised crime, have controls in order to
low wages and are sometimes reduce the potential
infiltrated by criminal for theft of mineral
elements. concentrate. These
controls
include the use of
real-time
tracking technology;
surveillance cameras
to identify alterations
in the transported
material;
protection and support
services on distribution
routes; reduction in
the number of authorised
stops in order to optimise
delivery times and
minimise
exposure of trucks
transporting
ore concentrates or
doré.
---------------------------- ---------------------------- ----------------------------
Our risk matrix.
A consistent assessment of the probability and impact of risk
occurrence is fundamental to establishing, prioritising and
managing the risk profile of the Company. In common with many
organisations and in line with good practice, we use a probability
and impact matrix for this purpose.
Please see link for our risk matrix:
http://www.rns-pdf.londonstockexchange.com/rns/3389H_1-2021-8-3.pdf
III. Emerging Risks.
We define an emerging risk as a new manifestation of risk that
cannot yet be fully assessed, a risk that is known to some degree
but is not likely to materialise or have an impact for several
years, or a risk that the company is not aware of but that could,
due to emerging macro trends in the mid or long-term future, have
significant implications for the achievement of our strategic plan.
Furthermore, we consider emerging risks in the context of
longer-term impact and shorter-term risk velocity. We have
therefore defined emerging risks as those risks captured on a risk
register that: (I) are likely to be of significant scale beyond a
five-year timeframe; or (II) have the velocity to significantly
increase in severity within the five-year period.
To strengthen our emerging risks management framework, during
2021 we carried out activities to: (I) identify new emerging risks;
II) re-assess emerging risks identified in 2020; (III) deploy
effective monitoring mechanisms; (IV) carry out horizon scanning to
consider disruptive scenarios, and; (V) implement mitigating
control actions and enhance our risk awareness culture. This
process involved workshops, surveys and meetings with the Executive
Committee, business unit leaders, support and corporate areas, as
well as suppliers, contractors and customers. We also consulted
third party information from global risk reports, academic
publications, risk consulting experts and industry benchmarks.
Our risk management standards promote communication of
up-to-date information on the Company and industry risks, trends
and emerging risks. This year's emerging risk assessment determined
the two most exposed emerging risks to be: "Water Crisis" and
"Technological Disruption" and identified two new emerging risks:
"Transition to a low-carbon future" in connection with Climate
Change Principal Risk and "Increasing societal and investor
expectations"
Statement of directors' responsibilities
The Directors of the Company hereby confirm that to the best of
their knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as issued by
the International Accounting Standards Board IASB and as adopted by
UK and gives a true and fair view of the assets, liabilities,
financial position and profit and loss account of the Fresnillo
Group as required by DTR 4.2.4; and
-- the interim management report includes a fair review of the information required by
o DTR 4.2.7 (being an indication of important events that have
occurred during the first six months of the financial year and
their impact on the condensed set of financial statements; and a
description of the principle risks and uncertainties for the
remaining six months of the year); and
o DTR 4.2.8 (being related party transactions that have taken
place in the first six months of the current financial year and
that have materially affected the financial position or performance
of the entity during that period and changes since the last annual
report).
On behalf of the board of directors of Fresnillo plc
Octavio Alvídrez
Chief Executive Officer
INDEPENT REVIEW REPORT TO FRESNILLO PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the interim
consolidated income statement, the interim consolidated statement
of comprehensive income, the interim consolidated balance sheet,
the interim consolidated statement of cash flows , the interim
consolidated statement of changes in equity and related notes to 1
to 18 . We have read the other information contained in the half
yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34, "Interim
Financial Reporting" and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2a, the annual financial statements of the
group will be prepared in accordance with UK adopted IFRSs. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34 , "Interim Financial
Reporting".
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statement in the half-yearly financial report. Our
conclusion, based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
3 August 2021
Interim Consolidated Income Statement
Notes For the six months ended 30 June
2021 (Unaudited) 2020 (Unaudited)
(in thousands of US dollars)
| Pre-Silverstream Silverstream Total Pre- Silverstream Total
revaluation revaluation Silverstream revaluation
effect effect revaluation effect
effect
Continuing
operations:
Revenues 4 1,466,840 1,466,840 1,054,183 1,054,183
Cost of sales 5 (860,051) (860,051) (732,999) (732,999)
Gross profit 606,789 606,789 321,184 321,184
Administrative
expenses (51,213) (51,213) (41,751) (41,751)
Exploration
expenses (60,900) (60,900) (50,737) (50,737)
Selling expenses (13,056) (13,056) (10,486) (10,486)
Other operating
income 2,768 2,768 5,719 5,719
Other operating
expenses (12,538) (12,538) (7,052) (7,052)
Profit from
continuing
operations
before
net finance
costs
and income tax 471,850 471,850 216,877 216,877
Finance income 6 5,565 5,565 9,494 9,494
Finance costs 6 (30,960) (30,960) (25,652) (25,652)
Revaluation
effects
of Silverstream
contract 10 (4,023) (4,023) (31,824) (31,824)
Foreign exchange
gain/(loss) 2,921 2,921 (41,014) (41,014)
Profit from
continuing
operations
before
income tax 449,376 (4,023) 445,353 159,705 (31,824) 127,881
Corporate income
tax 7 (112,355) 1,207 (111,148) (71,502) 9,547 (61,955)
Special mining
right 7 (25,842) (25,842) (9,425) (9,425)
Income tax
(expense)/credit 7 (138,197) 1,207 (136,990) (80,927) 9,547 (71,380)
Profit for the
period
from continuing
operations 311,179 (2,816) 308,363 78,778 (22,277) 56,501
Attributable to:
Equity
shareholders
of the Company 304,942 (2,816) 302,126 86,802 (22,277) 64,525
Non-controlling
interests 6,237 6,237 (8,024) (8,024)
311,179 (2,816) 308,363 78,778 (22,277) 56,501
Earnings per
share:
(US$)
Basic and diluted
earnings per
ordinary
share from
continuing
operations 8 - 0.410 - 0.088
Adjusted earnings
per share: (US$)
Adjusted basic
and
diluted earnings
per ordinary
share
from continuing
operations 8 0.414 - 0.118 -
Interim Consolidated Statement of Comprehensive Income
For the six months ended
30 June
2021 2020
(Unaudited) (Unaudited)
(in thousands of US dollars)
Profit for the period 308,363 56,501
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss:
Changes in the fair value of
cash flow hedges - 1,396
Gain on cost of hedging recycled
to income statement (3,827) (1,556)
Changes in the fair value of
cost of hedges (3,873) 2,064
Total effect of cash flow hedges (7,700) 1,904
Foreign currency translation 24 (1,526)
Income tax effect on items
that may be reclassified subsequently
to profit or loss 2,310 (571)
Net other comprehensive loss
that may be reclassified subsequently
to profit or loss (5,366) (193)
Items that will not be reclassified
to profit or loss:
Changes in the fair value of
cash flow hedges (434) 172
Total effect of cash flow hedges (434) 172
Changes in the fair value of
equity investments at FVOCI 8,577 20,100
Income tax effect on items
that will not be reclassified
to profit or loss (2,443) (6,082)
Net other comprehensive profit
that will not be reclassified
to profit or loss 5,700 14,190
Other comprehensive income,
net of tax 334 13,997
Total comprehensive income,
net of tax 308,697 70,498
Attributable to:
Equity shareholders of the
Company 302,531 78,534
Non-controlling interests 6,166 (8,036)
308,697 70,498
Interim Consolidated Balance Sheet
Notes
As of 30 June As of 31 December
2021 2020
(Unaudited) (Audited)
(in thousands of US
dollars)
ASSETS
Non-current assets
Property, plant and equipment 9 2,696,784 2,708,195
Equity instruments at FVOCI 18 221,153 212,576
Silverstream contract 10,18 507,761 534,697
Deferred tax asset 168,437 120,676
Inventories 11 91,620 91,620
Other receivables 12 39,595 -
Other assets 3,450 3,429
3,728,800 3,671,193
Current assets
Inventories 11 376,123 351,587
Trade and other receivables 12 504,300 512,927
Prepayments 16,149 18,207
Derivative financial instruments 18 323 6,290
Silverstream contract 10,18 41,759 41,443
Cash and cash equivalents 13 1,202,898 1,070,415
2,141,552 2,000,869
Total assets 5,870,352 5,672,062
EQUITY AND LIABILITIES
Capital and reserves attributable
to shareholders of the Company
Share capital 368,546 368,546
Share premium 1,153,817 1,153,817
Capital reserve (526,910) (526,910)
Hedging reserve(1) 442 3,292
Cost of hedging reserve(1) (1,639) 1,072
Fair value reserve of financial assets
at FVOCI 123,424 117,420
Foreign currency translation reserve (1,443) (1,467)
Retained earnings 2,492,227 2,363,275
3,608,464 3,479,045
Non-controlling interests 141,756 135,559
Total equity 3,750,220 3,614,604
Non-current liabilities
Interest-bearing loans 1,156,330 1,156,670
Lease liabilities 7,021 7,697
Provision for mine closure cost 252,338 245,688
Provision for pensions and other post-employment
benefit plans 13,077 11,977
Deferred tax liability 261,493 295,595
1,690,259 1,717,627
(1 The amounts recognised in hedging reserve and cost of hedging
reserve at 31 December 2020 have been amended to reflect the nature
of the components of the valuation of certain) (derivatives at that
date.)
Current liabilities
Trade and other payables 339,109 225,208
Income tax payable 70,876 88,066
Derivative financial instruments 18 2,135 -
Lease liabilities 4,546 5,048
Employee profit sharing 13,207 21,509
429,873 339,831
Total liabilities 2,120,132 2,057,458
Total equity and liabilities 5,870,352 5,672,062
Interim Consolidated Statement of Cash Flows
Notes For the six months ended
30 June
2021 2020
(Unaudited) (Unaudited)
(in thousands of US
dollars)
Net cash from operating activities 17 512,035 422,518
Cash flows from investing activities
Purchase of property, plant and
equipment (256,794) (181,958)
Proceeds from the sale of property,
plant and equipment and other assets 162 144
Silverstream contract 10 22,453 13,135
Interest received 4,866 9,493
Proceeds from the layback agreement 2c 25,000 -
Net cash used in investing activities (204,313) (159,186)
Cash flows from financing activities
Proceeds from notes payable(1) 23,625 23,145
Principal elements of lease payment 1 (3,327) (2,796)
Dividends paid to shareholders of
the Company (172,620) (87,737)
Capital contribution 31 27
Interest paid(2) (24,837) (19,723)
Net cash used in financing activities (177,128) (87,084)
Net increase in cash and cash equivalents
during the period 130,594 176,248
Effect of exchange rate on cash
and cash equivalents 1,889 1,835
Cash and cash equivalents at 1 January 13 1,070,415 336,576
Cash and cash equivalents at 30
June 13 1,202,898 514,659
(1) Corresponds to a short-term interest-bearing note payable
received from Minera los Lagartos, S.A. de C.V. which holds a
non-controlling interest in Juanicipio project. As of 30 June 2021,
the balance amounted US$88.9 million (30 June 2020: US$23.3
million) and is presented within trade and other payables in the
balance sheet.
(2) Total interest paid during the six months ended 30 June 2021
less amounts capitalised totalling US$4.1 million (30 June 2020:
US$4.4 million) which is included within the caption Purchase of
property, plant and equipment.
Interim Consolidated Statement of Changes in Equity
Fair
value
reserve Total
of attributable
financial Foreign to
Cost of assets currency shareholders
Share Share Capital Hedging hedging at translation Retained of the Non-controlling Total
Notes capital premium reserve Reserve(1) reserve(1) FVOCI reserve earnings Company interests equity
(in thousands of US dollars)
Balance at 1
January
2020
(Audited) 368,546 1,153,817 (526,910) 139 918 54,734 (250) 2,093,666 3,144,660 134,059 3,278,719
Profit for the
period - - - - - - - 64,525 64,525 (8,024) 56,501
Other
comprehensive
income, net
of tax - - - 1,109 356 14,070 (1,526) - 14,009 (12) 13,997
Total
comprehensive
income for
the period - - - 1,109 356 14,070 (1,526) 64,525 78,534 (8,036) 70,498
Hedging loss
transferred
to the
carrying
value
of PPE
purchased
during
the period - - - (143) - - - - (143) 3 (140)
Capital
contribution - - - - - - - - - 27 27
Dividends paid 14 - - - - - - - (87,690) (87,690) - (87,690)
Balance at 30
June
2020
(Unaudited) 368,546 1,153,817 (526,910) 1,105 1,274 68,804 (1,776) 2,070,501 3,135,361 126,053 3,261,414
Balance at 1
January
2021
(Audited) 368,546 1,153,817 (526,910) 3,292 1,072 117,420 (1,467) 2,363,275 3,479,045 135,559 3,614,604
Profit for the
period - - - - - - - 302,126 302,126 6,237 308,363
Other
comprehensive
income, net
of tax - - - (2,912) (2,711) 6,004 24 - 405 (71) 334
Total
comprehensive
income for
the period - - - (2,912) (2,711) 6,004 24 302,126 302,531 6,166 308,697
Hedging loss
transferred
to the
carrying
value
of PPE
purchased
during
the period 18(c) - - - 62 - - - - 62 - 62
Capital
contribution - - - - - - - - - 31 31
Dividends paid 14 - - - - - - - (173,174) (173,174) - (173,174)
Balance at 30
June
2021
(Unaudited) 368,546 1,153,817 (526,910) 442 (1,639) 123,424 (1,443) 2,492,227 3,608,464 141,756 3,750,220
(1 The amounts recognised in hedging reserve and cost of hedging
reserve at 31 December 2020 have been amended to reflect the nature
of the components of the valuation of certain) (derivatives at that
date.)
Notes to the Interim Condensed Consolidated Financial
Statements
1 Corporate Information
Fresnillo plc ("the Company", together with its subsidiaries,
"the Group") is a public limited company registered in England and
Wales with the registered number 6344120.
Industrias Peñoles S.A.B. de C.V. ("Peñoles") currently owns 75
percent of the shares of the Company and the ultimate controlling
party of the Company is the Baillères family, whose beneficial
interest is held through Peñoles. The registered address of Peñoles
is Calzada Legaria 549, Mexico City 11250. Copies of Peñoles'
accounts can be obtained from www.penoles.com.mx. Further
information on related party balances and transactions with Peñoles
group companies is disclosed in Note 16.
The interim condensed consolidated financial statements of the
Group for the six months ended 30 June 2021 ("interim consolidated
financial statements") were authorised for issue by the Board of
Directors of Fresnillo plc on 2 August 2021.
The Group's principal business is the mining and beneficiation
of non-ferrous minerals, and the sale of related production. The
primary contents of this production are silver, gold, lead and
zinc. Further information about the Group's operating mines and its
principal activities is disclosed in Note 3.
2 Significant accounting policies
(a) Basis of preparation and statement of compliance
The interim consolidated financial statements of the Group for
the six months ended 30 June 2021 have been prepared in accordance
with IAS 34 Interim Financial Reporting as issued by the
International Accounting Standards Board IASB and as adopted by UK.
For reporting periods beginning on or after 1 January 2021, the
Company's annual financial statements will be and these interim
statements are prepared in accordance with UK- adopted
international accounting standards which were established as a
result of the UK's exit from the European Union. As applied to the
Company there are not material differences from International
Financial Reporting Standards as issued by the IASB. Except for the
application of UK- adopted international accounting standards these
Interim Statements have been prepared on the basis of the same
accounting principles as those used in the Annual Report (Pages 204
to 214) for the year ended 31 December 2020.
These interim consolidated financial statements do not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. A copy of the statutory accounts for the year
ended 31 December 2020 has been delivered to the Register of
Companies. The auditor's report in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 in relation to those accounts was
unqualified, did not include a reference to any matters to which
the auditor drew attention by way of emphasis without qualifying
the report and did not contain a statement under section 498(2) or
section 498(3) of the UK Companies Act 2006.
The interim consolidated financial statements have been prepared
on a historical cost basis, except for trade receivables,
derivative financial instruments, equity securities and defined
benefit pension scheme assets which have been measured at fair
value.
The interim consolidated financial statements are presented in
dollars of the United States of America (US dollars or US$) and all
values are rounded to the nearest thousand ($000) except where
otherwise indicated.
The impact of seasonality or cyclicality on operations is not
considered significant on the interim consolidated financial
statements.
On 23 April 2021, the Mexican Government published new
regulations (the "New Regulations") prohibiting the sub-contracting
of services (also known as "outsourcing"), except for qualified
specialized services or works that are not encompassed within the
main business purpose of the contracting entity. Initially, a
three-month transition period expiring on 1 August 2021 was granted
to allow employers to implement necessary arrangements in order to
comply with the tax, labour and social security provisions. On 30
July 2021, Mexico's two houses of Congress granted an extension to
the transition period until 1 September 2021. Based on the Group's
analysis of possible arrangements, the New Regulations are not
expected to materially impact production or costs in the second
half of 2021.
(b) Basis of consolidation
The interim consolidated financial statements set out the
Group's financial position as of 30 June 2021 and 31 December 2020,
and its operations and cash flows for the six-month periods ended
30 June 2021 and 30 June 2020.
The basis of consolidation adopted in the preparation of the
interim consolidated financial statements is consistent with that
applied in the preparation of the consolidated financial statements
for the year ended 31 December 2020.
(c) Changes in accounting policies and presentation
The accounting policies adopted in the preparation of the
interim consolidated financial statements are consistent with those
applied in the preparation of the consolidated financial statements
for the year ended 31 December 2020.
New standards, amendments and interpretations as adopted by the
Group
A number of new or amended standards became applicable for the
current reporting period. The Group did not have to change its
accounting policies or make retrospective adjustments as a result
of adopting these standards.
Impact of standards issued but not yet applied by the Group
The IASB has issued other amendments resulting from improvements
to IFRSs that management considers do not have any impact on the
accounting policies, financial position or performance of the
Group. The Group has not early adopted any standard, interpretation
or amendment that was issued but is not yet effective.
Significant accounting judgments, estimates and assumptions
Significant accounting judgments, estimates and assumptions are
consistent with those disclosed in the consolidated financial
statements for the year ended 31 December 2020.
Additionally, as discussed in next section, the Group has
evaluated the impact of the COVID-19 pandemic implications in the
evaluation of significant judgements as of 30 June 2021 resulted in
no changes required.
Layback agreement
In December 2020, the Group entered into multiple contracts with
Orla Mining Ltd. and its Mexican Subsidiary, Minera Camino Rojo,
S.A. de C.V. (together herein referred to as "Orla"), granting Orla
the right to expand the Camino Rojo oxide pit onto Fresnillo's
"Guachichil D1" mineral concession. Based on the terms of the
contracts, the Group will transfer the legal rights to access and
mine the mineral concession to Orla.
Due to the fact that the contracts were negotiated together, the
Group has considered the layback contracts as a single agreement
(Layback Agreement) for the purpose of determining the accounting
implications of the transaction. The Group determined that the
transaction should be accounted for as the sale of a single
intangible asset. As such, it is relevant to consider the point at
which control transfers in accordance with the requirements of IFRS
15 regarding when a performance obligation is satisfied and in
light of the continuing performance obligations on the part of the
Group.
The effectiveness of the agreement was subject to the approval
of the Mexican Federal Competition Commission (COFECE), which was
granted in February 2021. The consideration includes three
payments: US$25.0 million that was paid upon the approval of
COFECE, US$15.0 million that will be paid no later than 1 December
2022, US$22.8 million no later than 1 December 2023. The future
amounts due bear interest at an annual rate of 5%. Upon
notification of approval by COFECE, the Group recognised the fair
value of consideration set out in the contract (US$67.2 million,
being the cash flows set out above discounted at the risk-free
rate).
As set out in the Layback Agreement, the Group continues to
provide support to Orla in respect of other negotiations relevant
to their acquisition of the rights to access from the local ejido,
thus the Company has recognized the total value of the agreement as
deferred income. Based on the expected time of complete the
remaining performance obligations the Company the deferred income
is classified as current.
The ongoing support does not affect the Group's contractual
right to the payments set out above. As such, the fair value of the
amount receivable has been recognised in full (US$42.2
million).
(d) Effect of COVID-19
The Company continues to actively monitor the impact of the
COVID-19 pandemic, including the impact on economic activity and
financial reporting. Throughout the pandemic, the Company has taken
a number of measures to safeguard the health of its employees and
their local communities while continuing to operate safely and
responsibly. In the first half of 2021, the Company incurred $2.5
million of COVID-19 related costs mainly associated with community
support, the acquisition of additional personal protective
equipment and higher transportation costs. As the pandemic
continues to progress and evolve, it is difficult to predict the
full extent and duration of resulting operational and economic
impacts for the Company, but these may impact a number of reporting
periods. This uncertainty impacts judgements made by the Company,
including those relating to determining the recoverable values of
the Company's non-current assets.
(e) Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out above in the Operational Review, with further detail in
the Annual Report 2020. The financial position of the Group, its
cash flows and liquidity position are described in the Financial
Review. In addition, the Group's objectives, policies and processes
for managing its capital; its financial risk management objectives;
and its exposures to credit risk and liquidity risk were set out in
the Annual Report 2020. Details of its financial instruments and
hedging activities as at 30 June 2021 are set out in note 18 to the
interim report.
In making their assessment of the Group's ability to manage its
future cash requirements, the Directors have considered the Company
and Group budgets and the cash flow forecasts for the period to
31st December 2022. In addition, they reviewed a more conservative
cash flow scenario with reduced silver and gold prices of US$21.1
and US$1,568 respectively throughout this period, whilst
maintaining current budgeted expenditure while only considering
projects approved by the Executive Committee. This resulted in our
current cash balances reducing over time but maintaining sufficient
liquidity throughout the period.
The Directors have further calculated prices (US$11.6 and US$823
for silver and gold respectively), which should they prevail to the
end of 2022 would result in cash balances decreasing to minimal
levels by the end of 2022, without applying mitigations.
Should metal prices remain below the stressed prices above for
an extended period, management have identified specific elements of
capital and exploration expenditures which could be deferred
without adversely affecting production profiles throughout the
period. Finally management could amend the mining plans to
concentrate on production with a higher margin in order to
accelerate cash generation without affecting the integrity of the
mine plans.
Additionally, the Directors reviewed scenarios that incorporated
an estimated potential impact of the same severe but plausible
Covid-19 restrictions that were considered in the 2020 year end
going concern assessment (Covid Overlay). Further detail about this
overlay is set out in the going concern statement and viability
assessment disclosure in the 2020 Annual Report.
After reviewing all of the above considerations, the Directors
have a reasonable expectation that management have sufficient
flexibility in adverse circumstances to maintain adequate resources
to continue in operational existence for the foreseeable future.
The Directors, therefore, continue to adopt the going concern basis
of accounting in preparing the annual financial statements.
3 Segment reporting
For management purposes, the Group is organised into operating
segments based on producing mines.
At 30 June 2021 the Group has six reportable operating segments
represented by six producing mines as follows:
The Fresnillo mine, located in the State of Zacatecas, an
underground silver mine;
The Saucito mine, located in the State of Zacatecas, an
underground silver mine;
The Cienega mine, located in the State of Durango, an
underground gold mine;
The Herradura mine, located in the State of Sonora, a surface
gold mine;
The Noche Buena mine, located in the State of Sonora, a surface
gold mine; and
The San Julian mine, located on the border of Chihuahua /
Durango states, an underground silver-gold mine.
The operating performance and financial results for each of
these mines are reviewed by management. As the Group's chief
operating decision maker does not review segment assets and
liabilities, the Group has not disclosed this information.
In the six months ended 30 June 2021 and 2020, all revenue was
derived from customers based in Mexico.
Management monitors the results of its operating segments
separately for the purpose of performance assessment and making
decisions about resource allocation. Segment performance is
evaluated without taking into account certain adjustments included
in revenue as reported in the interim consolidated income
statements, and certain costs included within cost of sales and
gross profit which are considered to be outside of the control of
the operating management of the mines. The table below provides a
reconciliation from segment profit to gross profit as per the
interim consolidated income statement. Other income and expenses
included in the interim consolidated income statement are not
allocated to operating segments. Transactions between reportable
segments are accounted for on an arm's length basis similar to
transactions with third parties.
Operating segments
The following tables present revenue and profit information
regarding the Group's operating segments for the six months ended
30 June 2021 and 2020, respectively. Revenues for the six months
ended 30 June 2021 and 30 June 2020 include those derived from
contracts with costumers and other revenues, as showed in note
4.
Six months ended 30 June 2021
--------------------------------------------------------------------------------------------------------- ----------
US$ thousands Fresnillo Herradura Cienega Saucito Noche San Other(4) Adjustments Total
Buena Julian and
eliminations
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Revenues:
Third party(1) 246,170 449,062 115,542 309,613 74,883 271,570 - - 1,466,840
Inter-Segment - - - - - - 75,416 (75,416) -
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Segment
revenues 246,170 449,062 115,542 309,613 74,883 271,570 75,416 (75,416) 1,466,840
Segment
profit(2) 129,318 223,548 60,718 203,534 20,787 182,866 60,984 (1,082) 880,673
Foreign
exchange
hedging gains 3,827
Depreciation
and
amortisation (265,366)
Employee profit
sharing (12,345)
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Gross profit
as per the
income
statement 606,789
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Capital
expenditure(3) 43,662 27,730 20,485 36,510 278 20,185 107,945 - 256,795
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
(1) Total third party revenues include treatment and refining
charges amounting US$76.2 million. Adjustments and eliminations
correspond to hedging gains (note 4).
(2) Segment profit excluding f oreign exchange hedging gains,
depreciation and amortisation and employee profit sharing.
(3) Capital expenditure represents the cash outflow in respect
of additions to property, plant and equipment, including mine
development, construction of leaching pads, and purchase of mine
equipment, excluding additions relating to changes in the mine
closure provision. Significant additions include the facilities of
the Juanicipio development project (included in other) and mine
development.
(4) Other inter-segment revenue corresponds to leasing services
provided by Minera Bermejal, S.A. de C.V; capital expenditure
corresponds to Minera Juanicipio S.A de C.V.
Six months ended 30 June 2020
-----------------------------------------------------------------------------------------------------------------------
US$ thousands Fresnillo Herradura Cienega Saucito Noche San Other(4) Adjustments Total
Buena Julian and
eliminations
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Revenues:
Third party(1) 156,496 348,711 101,109 211,463 80,347 154,588 1,469 1,054,183
Inter-Segment - - - - - - 86,395 (86,395) -
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Segment
revenues 156,496 348,711 101,109 211,463 80,347 154,588 86,395 (84,926) 1,054,183
Segment
profit(2) 75,973 192,671 54,289 118,590 24,898 70,045 45,092 (915) 580,643
Foreign
exchange
hedging gains 87
Depreciation
and
amortisation (251,707)
Employee profit
sharing (7,839)
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Gross profit
as per the
income
statement 321,184
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
Capital
expenditure(3) 50,203 14,941 12,273 30,293 1,358 17,531 55,359 181,958
---------------- ---------- ---------- -------- -------- ------- -------- --------- ------------- ----------
(1) Total third party revenues include treatment and refining
charges amounting US$72.4 million. Adjustments and eliminations
correspond to hedging gains (note 4).
(2) Segment profit excluding foreign exchange hedging gains,
depreciation and amortisation and employee profit sharing.
(3) Capital expenditure represents the cash outflow in respect
of additions to property, plant and equipment, including mine
development, construction of leaching pads, and purchase of mine
equipment, excluding additions relating to changes in the mine
closure provision. Significant additions include the construction
of the leaching plant at Fresnillo and the facilities of the
Juanicipio development project (included in other).
(4) Other inter-segment revenue corresponds to leasing services
provided by Minera Bermejal, S.A. de C.V; capital expenditure
corresponds to Minera Juanicipio S.A de C.V.
4 Revenues
Revenues reflect the sale of goods, being concentrates, doré,
slag, precipitates and activated carbon of which the primary
contents are silver, gold, lead and zinc.
(a) Revenues
Six months ended 30
June
2021 2020
(in thousands of US
dollars)
Revenues from contracts with customers 1,481,812 1,051,796
Revenues from other sources
Provisional pricing adjustment on products
sold (14,972) 918
Hedging gain on sales - 1,469
1,466,840 1,054,183
(b) Revenues by product sold
Six months ended 30
June
2021 2020
(in thousands of US
dollars)
Lead concentrates (containing silver, gold,
lead and by-products) 629,775 408,017
Doré and slag (containing gold, silver
and by-products) 459,668 367,359
Zinc concentrates (containing zinc, silver
and by-products) 178,441 94,414
Precipitates (containing gold and silver) 134,679 122,694
Activated carbon (containing gold, silver and
by-products) 64,277 61,699
1,466,840 1,054,183
All lead and zinc concentrates, precipitates, doré, activated
carbon and slag, were sold to Peñoles' metallurgical complex,
Met-Mex, for smelting and refining.
(c) Value of metal content in products sold
For products other than refined silver and gold, invoiced
revenues are derived from the value of metal content adjusted by
treatment and refining charges incurred by the metallurgical
complex of the customer. The value of the metal content of the
products sold, before treatment and refining charges is as
follows:
Six months ended
30 June
2021 2020
(in thousands of
US dollars)
Silver 629,096 382,961
Gold 720,042 611,961
Zinc 131,805 82,869
Lead 62,135 48,844
Value of metal content in products sold 1,543,078 1,126,635
Adjustment for treatment and refining charges (76,238) (72,452)
Total revenues(1) 1,466,840 1,054,183
(1) Includes provisional price adjustments which represent
changes in the fair value of trade receivables resulting in a loss
of US$15.0 million (2020: gain of US$1.0 million) . During the
period ended 30 June 2021 there were no hedging effects on revenues
(2020: gain of US$1.47 million).
The average realised prices for the gold and silver content of
products sold prior to the deduction of treatment and refining
charges, were:
Six months ended 30
June
2021 2020
(in US dollars per ounce)
Gold(2) 1,789.24 1,676.80
Silver(2) 26.41 16.79
(2) For the purpose of the calculation, revenue by content of
products sold does not include the results from hedging.
5 Cost of sales
Six months ended
30 June
2021 2020
(in thousands of
US dollars)
Depreciation and amortisation (Note 9) 265,366 251,707
Personnel expenses(1) 68,081 55,351
Maintenance and repairs 93,958 83,520
Operating materials 106,983 97,145
Energy 117,505 89,667
Contractors 200,637 169,115
Mining concession rights and contributions 9,885 5,102
Freight 4,417 3,788
Surveillance 4,044 3,206
Insurance 4,580 2,991
Other 13,259 3,645
Cost of production 888,715 765,237
Unabsorbed production costs(2) 956 6,122
Gain on foreign currency hedges (3,827) (87)
Change in work in progress and finished goods
(ore inventories)(3) (25,793) (38,273)
Cost of sales 860,051 732,999
(1) Personnel expenses include employees' profit sharing of
US$8.9 million for the six months ended 30 June 2021 (six months
ended 30 June 2020: US$7.8 million).
(2) Corresponds to fixed production cost (labour cost and
depreciation) incurred in Minera San Julian due to a power outage
(2020: fixed production cost (labour cost and depreciation)
incurred in Penmont during the lockdown period related to
COVID-19).
(3) Refer to 2020 Consolidated Financial Statements for more
detail related to change in work in progress inventories for the
six months ended 30 June 2020 following a change in estimation.
6 Finance income and finance costs
Six months ended
30 June
2021 2020
(in thousands of
US dollars)
Finance income:
Interest on short term deposits and investments 2,551 2,709
Interest on tax receivables 2,316 6,784
Other 698 1
5,565 9,494
Finance costs:
Interest on interest-bearing loans 23,764 19,409
Interest on lease liabilities 288 341
Unwinding of discount on provisions 6,460 5,363
Other 448 539
30,960 25,652
7 Income tax expense
Six months ended 30
June
2021 2020
(in thousands of US
dollars)
Current corporate income tax:
Income tax charge 178,812 117,156
Amounts under /(over) provided in previous
periods 6,430 (8,425)
185,242 108,731
Deferred corporate income tax:
Origination and reversal of temporary differences (72,887) (37,229)
Revaluation effects of Silverstream contract (1,207) (9,547)
(74,094) (46,776)
Corporate income tax 111,148 61,955
Current special mining right:
Special mining right charge(1) 33,771 7,899
33,771 7,899
Deferred special mining right:
Origination and reversal of temporary differences (7,929) 1,526
Special mining right 25,842 9,425
Income tax expense as reported in the income
statement 136,990 71,380
(1) The special mining right allows the deduction of payments
for mining concession rights up to the amount of the special mining
right payable within the same legal entity. In the six months ended
30 June 2021, the Group credited US$5.7 million (2020: US$7.9
million) of mining concession rights against the special mining
right. Prior to credits permitted under the special mining right
regime, the current special mining right charge would have been
US38.8 million (2020: US$16.8).
The total mining concession rights paid during the six-month
period were US$11.4 million (2020: US$11.3 million) and have been
recognised in the income statement within cost of sales and
exploration expenses. Mining concessions rights paid in excess of
the special mining right cannot be credited to special mining
rights in future fiscal periods, and therefore, no deferred tax
asset has been recognised in relation to the excess.
Tax charged within the six-month period ended 30 June 2021 has
been calculated by applying the effective rate of tax which is
expected to apply to the Group for the period ended 31 December
2021using rates substantively enacted by 30 June 2021 as required
by IAS 34 Interim Financial Reporting.
The effective tax rate for corporate income tax for the six
months ended 30 June 2021 is 24.96% (six months ended 30 June 2020:
48.45%) and 30.76% including the special mining right (six months
ended 30 June 2020: 55.82%). The main factors that decrease the
effective tax rate for corporate income tax below 30% are the
foreign exchange effect on tax value of assets and liabilities net
of the deductible effect of foreign exchange loss of the
period.
8 Earnings per share
Earnings per share ('EPS') is calculated by dividing profit for
the period attributable to equity shareholders of the Company by
the weighted average number of ordinary shares in issue during the
period.
The Company has no dilutive potential ordinary shares.
For the six months ended 30 June 2021 and 30 June 2020, earnings
per share have been calculated as follows:
Six months ended
30 June
2021 2020
(in thousands of
US dollars)
Earnings:
Profit from continuing operations attributable
to equity holders of the Company 302,126 64,525
Adjusted profit from continuing operations
attributable to equity holders of the Company 304,942 86,802
Adjusted profit is profit as disclosed in the Interim
Consolidated Income Statement adjusted to exclude revaluation
effects of the Silverstream contract of US$4.0 million loss (US$2.8
million net of tax) (2020: US$31.8 million gain and US$22.2 million
net of tax).
Adjusted earnings per share have been provided in order to
provide a measure of the underlying performance of the Group, prior
to the revaluation effects of the Silverstream contract, a
derivative financial instrument.
Six months ended 30
June
2021 2020
Number of shares:
Weighted average number of ordinary shares
in issue ('000) 736,894 736,894
Six months ended 30
June
2021 2020
Earnings per share:
Basic and diluted earnings per ordinary share 0.410 0.088
from continuing operations (US$)
Adjusted basic and diluted earnings per ordinary 0.414 0.118
share from continuing operations (US$)
9 Property, plant and equipment
The changes in property, plant and equipment, including
right-of-use assets, during the six months ended 30 June 2021 are
principally additions of US$256.8 million (six months ended 30 June
2020: US$142.6 million) and depreciation and amortisation of
US$267.2 million, of which US$1.1 million was capitalised as a part
of the cost of other fixed assets (six months ended 30 June 2020:
US$252.4 million, of which US$1.4 million was capitalised).
Significant additions include the development of Juanicipio project
as well as plant equipment and mine development in underground and
open pit mines.
As of 30 June 2021, the Group has contractual commitments
related to the construction and acquisition of property, plant and
equipment of US$ 216.5 million (30 June 2020: US$180.9
million).
10 Silverstream contract
On 31 December 2007, the Group entered into an agreement with
Peñoles through which it is entitled to receive the proceeds
received by the Peñoles Group in respect of the refined silver sold
from the Sabinas Mine ('Sabinas'), a base metals mine owned and
operated by the Peñoles Group, for an upfront payment of US$350
million. In addition, a per ounce cash payment of $2.00 in years
one to five and $5.00 thereafter (subject to an inflationary
adjustment that commenced from 31 December 2013) is payable to
Peñoles. The cash payment per ounce for the period ended 30 June
was $5.43 per ounce (30 June 2020: $5.37 per ounce). Under the
contract, the Group has the option to receive a net cash settlement
from Peñoles attributable to the silver produced and sold from
Sabinas, to take delivery of an equivalent amount of refined silver
or to receive settlement in the form of both cash and silver. If,
by 31 December 2032, the amount of silver produced by Sabinas is
less than 60 million ounces, a further payment is due from Peñoles
of US$1.00 per ounce of shortfall. At 30 June 2021 the weighted
average rate applied for the purposes of the valuation model
calculated with reference to annual undiscounted cash flow was
7.83% (30 June 2020: 7.08%).
In the six months ended 30 June 2021, total proceeds received in
cash were US$22.5 million (2020: US$13.1 million) of which, US$76
million was in respect of proceeds receivable as at 31 December
2020 (2019: US$5.2 million). C ash received in respect of the
period of US$14.8 million (six months ended 30 June 2020: US$7.8
million) corresponds to 1.09 million ounces of payable silver (six
months ended 30 June 2020: 1.19 million ounces). As at 30 June
2021, a further US$7.8 million (30 June 2020: US$4.0 million) of
cash corresponding to 383,179 ounces of silver is due (30 June
2020: 324,569 ounces).
A reconciliation of the beginning balance to the ending balance
is shown below.
2021 2020
(in thousands of
US dollars)
Balance at 1 January: 576,140 541,254
Cash received in respect of the period (14,804) (7,851)
Cash receivable (7,793) (4,048)
Remeasurement loss recognised in profit or
loss (4,023) (31,824)
Balance at 30 June 549,520 497,531
Less - Current portion 41,759 24,874
Non-current portion 507,761 472,657
The US$4.0 million unrealised loss recorded in the income
statement (30 June 2020: US$31.8 million loss) resulted mainly from
the increase in the LIBOR reference rate and a decrease in the
production plan due to silver resources update. These effects were
partially compensated by inflation and exchange rate forecasts and
a slight increase in the forward silver price curve.
11 Inventories
As at 30 As at 31
June December
2021 2020
(in thousands of US
dollars)
Finished goods(1) 46,779 28,925
Work in progress(2) 313,827 305,888
Ore stockpile(3) 193 414
Operating materials and spare parts 112,306 113,111
Inventories at lower of cost and net realisable
value 473,105 448,338
Allowance for obsolete and slow-moving inventories (5,362) (5,131)
Balance at lower of cost and net realisable
value 467,743 443,207
Less - Current portion 376,123 351,587
Non-current portion(4) 91,620 91,620
(1) Finished goods include metals contained in concentrates and
doré bars, and concentrates on hand or in transit to a smelter or
refinery.
(2) Work in progress includes metals contained in ores on
leaching pads. Refer to 2020 Consolidated Financial Statements for
more detail related to change in work in progress inventories for
the six months ended 30 June 2020 following a change in
estimation.
(3) Ore stockpile includes ore mineral obtained during the
development phase at Juanicipio.
(4) Non-current inventories relate to ore in leaching pads where
the leaching process has stopped and is not expected to restart
within twelve months.
12 Trade and other receivables
As at 30 June As at 31 December
2021 2020
(in thousands of US dollars)
Trade and other receivables from related
parties (Note 16)(1) 313,446 326,833
Value added tax receivable 167,276 167,957
Other receivables from related parties
(Note 16) 8,117 8,176
Other receivable from contractors 2,248 1,918
Other receivables arising from the
layback agreement (Note 2c) 2,615 -
Other receivables 11,377 8,545
505,079 513,429
Provision for credit impairment of
other receivables (779) (502)
504,300 512,927
Other receivables classified as non-current
assets:
Other receivables arising from the
layback agreement (Note 2c) 39,595 -
39,595 -
543,895 512,927
(1) Trade receivables from related parties are valued at fair
value based on forward market prices.
Balances corresponding to Value Added Tax receivables and
US$11.4 million within Other receivables (2020:US$8.5 million) are
not financial assets.
13 Cash and cash equivalents
The Group considers cash and cash equivalents when planning its
operations and in order to achieve its treasury objectives.
As at 31
As at 30 June December
2021 2020
( in thousands of US
dollars )
Cash at bank and on hand 5,927 1,955
Short-term deposits 1,196,971 1,068,460
Cash and cash equivalents 1,202,898 1,070,415
Cash at bank earns interest at floating rates based on daily
bank deposits. Short-term deposits are made for varying periods of
between one day and three months, depending on the immediate cash
requirements of the Group, and earn interest at the respective
short-term deposit rates. Short-term deposits can be withdrawn at
short notice without any penalty or loss in value.
14 Dividends paid
Dividends declared by the Company are as follows:
Per share Amounts
US Cents $Million
------------------------------------------- ---------- ----------
Six months ended 30 June 2021
Total dividends paid during the period(1) 23.5 173.2
Six months ended 30 June 2020
Total dividends paid during the period(2) 11.9 87.7
------------------------------------------- ---------- ----------
(1) Final dividend for 2020 approved at the Annual General
Meeting on 24 June 2021 and paid on 28 June 2021.
(2) Final dividend for 2019 approved at the Annual General
Meeting on 26 May 2020 and paid on 2 June 2020.
15 Contingencies
The contingencies in the Group's annual consolidated financial
statements for the year ended 31 December 2020 as published in the
2020 Annual Report, are still applicable as of 30 June 2021, with
the followings updates:
- With regards to tax audits, we summarise the status of on-going inspections:
- On 13 February 2020, SAT initiated an audit of the income tax
and mining rights computations of Desarrollos Mineros Fresne for
the year 2014. On 3 February 2021, the SAT delivered its findings
to which the company responded on March 2, 2021 and began before
the PRODECON the procedure of a Conclusive Agreement. The findings
relate to the tax treatments of capitalised stripping cost and
exploration expenditure. On 29 June 2021 the Company provided
additional documentation and information to the SAT through
PRODECON and the SAT's response is expected on 5 August 2021.
It is not practical to determine the amount of any potential
claims or the likelihood of any unfavourable outcome arising from
this or any future inspections that may be initiated. However,
management believes that its interpretation of the relevant
legislation is appropriate and that the Group has complied with all
regulations and paid or accrued all taxes and withholdings that are
applicable.
16 Related party balances and transactions
The Group had the following related party transactions during
the six months ended 30 June 2021 and 30 June 2020 and balances as
at 30 June 2021 and 31 December 2020.
Related parties are those entities owned or controlled by the
ultimate controlling party, as well as those who have a minority
participation in Group companies and key management personnel of
the Group.
(a) Related party accounts receivable and payable
Accounts receivable Accounts payable
As at 30 As at As at As at 31
June 2021 31 December 30 June December
2020 2021 2020
(in thousands of US dollars)
Trade:
Metalúrgica Met-Mex Peñoles,
S.A. de C.V. 313,446 326,833 384 170
Other:
Industrias Peñoles, S.A.B.
de C.V. 7,793 7,648 - -
Metalúrgica Met-Mex Peñoles,
S.A. de C.V. 277 397 - -
Serviminas, S.A. de C.V. - - 5,111 -
Servicios Administrativos Peñoles,
S.A de C.V. - - 3,018 3,156
Servicios Especializados Peñoles,
S.A. de C.V. - - 1,731 2,652
Fuentes de Energía Peñoles,
S.A. de C.V. - - 764 568
Termoeléctrica Peñoles,
S. de R.L. de C.V. - - 2,788 2,662
Eólica de Coahuila S.A.
de C.V. - - 10,483 7,342
Other 47 131 1,374 3,079
321,563 335,009 25,653 19,629
Related party accounts receivable and payable will be settled in
cash.
Other balances due from related parties:
As at 31
As at 30 June December
2021 2020
(in thousands of US dollars)
Silverstream contract :
Industrias Peñoles, S.A.B. de C.V. 549,520 576,140
The Silverstream contract can be settled in either silver or
cash. Details of the Silverstream contract are provided in note
10.
(b) Principal transactions with affiliates are as follows:
Six months ended 30 June
2021 2020
(in thousands of US dollars)
Income :
Sales (1) :
Metalúrgica Met-Mex Peñoles, S.A.
de C.V. 1,466,840 1,052,714
Other income 1,591 1,428
Total income 1,468,431 1,054,142
(1) Figures are net of treatment and refining charges of US$76.2
million (June 2020: US$72.4 million).
Six months ended 30 June
2021 2020
(in thousands of US dollars)
Expenses :
Administrative Services:
Servicios Administrativos Peñoles,
S.A. de C.V.(2) 16,289 16,347
Servicios Especializados Peñoles,
S.A. de C.V. (2) 9,623 8,225
25,912 24,572
Energy:
Fuentes de Energía Peñoles, S.A.
de C.V. 2,202 1,752
Termoeléctrica Peñoles, S. de
R.L. de C.V. 10,390 8,588
Eólica de Coahuila, S.A. de C.V. 19,214 18,233
31,806 28,573
Operating materials and spare parts:
Wideco Inc 1,758 2,378
Metalúrgica Met-Mex Peñoles,
S.A. de C.V. 5,081 3,126
6,839 5,504
Equipment repairs and administrative services:
Serviminas, S.A. de C.V. 3,966 1,949
Insurance premiums:
Grupo Nacional Provincial, S.A.B. de C.V. 4,782 2,923
Other expenses 1,492 943
Total expenses 74,797 64,464
(2) Based on the Service Agreement with Servicios
Administrativos Peñoles, S.A. de C.V., ("SAPSA") and Servicios
Especializados Peñoles, S.A. de C.V. ("SEPSA"), both wholly owned
Peñoles' subsidiaries, the companies provided administrative
services during the six months ended 30 June 2021 for a total
amount of US$25.6 million (US$24.6 million for the six months ended
30 June 2020). Of the total amount of these services, US$24 million
(US$23.4 million for the six months ended 30 June 2020) were
recognised in administrative expenses and US$1.9 million (US$1.2
million for six months ended 30 June 2020) were capitalised.
(c) Compensation of key management personnel of the Group
Key management personnel include the members of the Board of
Directors and the Executive Committee who receive remuneration.
Six months ended 30 June
2021 2020
(in thousands of US dollars)
Salaries and bonuses 1,812 1,627
Post-employment pension 126 129
Other benefits 150 127
Total compensation paid to key management
personnel 2,088 1,883
17 Notes to the consolidated statement cash flows
Notes Six months ended 30 June
2021 2020
(in thousands of US dollars)
Reconciliation of profit for the
period to net cash generated from
operating activities
Profit for the period 308,363 56,501
Adjustments to reconcile profit
for the period to net cash inflows
from operating activities:
Depreciation and amortisation 9 265,979 252,411
Employee profit sharing 12,661 8,002
Deferred income tax credit 7 (82,023) (45,250)
Current income tax expense 7 219,013 116,630
Gain on the sale of property,
plant and equipment (22) (109)
Net finance costs 25,387 16,158
Foreign exchange (gain)/loss (3,572) 19,819
Difference between pension contributions
paid and amounts recognised in
the income statement 608 517
Non-cash movement on derivatives 1 (259)
Changes in fair value of Silverstream 10 4,023 31,824
Working capital adjustments
Decrease in trade and other receivables 9,341 71,323
Decrease in prepayments and other
assets 2,037 1,996
Increase in inventories (24,536) (43,154)
Increase in trade and other payables 28,285 7,139
Cash generated from operations 765,545 493,548
Income tax paid(1) (232,297) (63,984)
Employee profit sharing paid (21,213) (7,046)
Net cash from operating activities 512,035 422,518
(1) Income tax paid includes US$204.3 million corresponding to
corporate income tax (June 2020: US$61.4 million) and US$28
corresponding to special mining right (June 2020: US$2.2 million),
for further information refer to note 7.
18 Financial instruments
a. Classification
As at 30 June 2021
US$ thousands
-------------------------------------------------------------------------------------------
Financial assets: Amortized Fair value Fair value Fair value
cost through (hedging through
OCI instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Trade and other receivables
(Note 12(1) ) 43,677 - - 321,563
Equity instruments at FVOCI - 221,153 - -
Silverstream contract - - - 549,520
Derivative financial instruments - - 323 -
----------------------------------- ---------- ----------- -------------- -----------
Financial liabilities: Amortised Fair value Fair value
Cost (hedging through
instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Interest-bearing loans 1,156,330 - -
Trade and other payables 211,673 - -
Derivative financial instruments - 2,135 -
----------------------------------- ---------- ----------- -------------- -----------
(1 Relates to trade and other receivables from related parties
and contractors, net of the provision for impairment)
As at 31 December 2020
US$ thousands
----------------------------------------------------------------------------
Financial assets: Amortized Fair value Fair value Fair value
Cost through (hedging through
OCI instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Trade and other receivables
(Note 12(1) ) 1,944 - - 334,482
Equity instruments at FVOCI - 212,576 - -
Silverstream contract - - - 576,140
Derivative financial instruments - - 6,290 -
----------------------------------- ---------- ----------- -------------- -----------
Financial liabilities: Amortised Fair value Fair value
Cost (hedging through
instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Interest-bearing loans 1,156,670 - -
Trade and other payables 170,892 - -
----------------------------------- ---------- ----------- -------------- -----------
(1 Relates to trade and other receivables from related parties
and contractors, net of the provision for impairment)
b. Fair value measurement
Fair value hierarchy
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either: a) in
the principal market for the asset or liability, or b) in the
absence of a principal market, in the most advantageous market for
the asset or liability. The principal or the most advantageous
market must be accessible to the Group.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the interim consolidated financial statements are
categorised within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the fair
value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable
Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy as explained above.
The value of financial assets and liabilities other than those
measured at fair value are as follows:
Carrying amount Fair value
----------------------------- ------------------------------ ---------------------------
30 June 31 December 30 June 31 December
2021 2020 2021 2020
US$ thousands
----------------------------- ---------------------------------------------------------
Financial assets:
Trade and other receivables 43,677 1,944 43,677 1,944
Financial liabilities:
Interest-bearing loans(1) 1,156,330 1,156,210 1,213,771 1,297,770
Trade and other payables 211,673 170,892 211,673 170,892
----------------------------- ---------------- ------------ ----------- ------------
(1) Interest-bearing loans are categorised in Level 1 of the
fair value hierarchy.
The carrying amounts of all other financial instruments are
measured at fair value.
The financial assets and liabilities measured at fair value are
categorised into the fair value hierarchy as follows:
As of 30 June 2021
Fair value measure using
---------------------------------------------------------------------------------------------
Quoted prices Significant Significant Total
in active observable unobservable
markets (Level 2) (Level 3)
(Level 1)
US$ thousands
----------------------------------- --------------------------------------------------------
Financial assets:
Trade receivables (Note
12)(1) - - 321,563 321,563
Derivative financial instruments:
Option commodity contracts - 317 - 317
Option and forward foreign
exchange contracts - 5 - 5
Silverstream contract (Note
10) - - 549,520 549,520
Other financial assets:
Equity instruments at
FVOCI 221,153 - - 221,153
----------------------------------- -------------- ------------ -------------- ----------
221,153 323 871,083 1,092,559
----------------------------------- -------------- ------------ -------------- ----------
Financial liabilities:
Derivative financial instruments:
Option commodity contracts - 1,820 - 1,820
Option and forward foreign
exchange contracts - 315 - 315
- 2,135 - 2,135
----------------------------------- -------------- ------------ -------------- ----------
(1) Includes receivable corresponding Silverstream contract of
US7.8 million.
As of 31 December 2020
Fair value measure using
---------------------------------------------------------------------------------------------
Quoted prices Significant Significant Total
in active observable unobservable
markets (Level 2) (Level 3)
(Level 1)
US$ thousands
----------------------------------- --------------------------------------------------------
Financial assets:
Trade receivables (Note
12) (1) 334,482 334,482
Derivative financial instruments:
Option commodity contracts - 1,666 - 1,666
Option and forward foreign
exchange contracts - 4,624 - 4,624
Silverstream contract - - 576,140 576,140
Other financial assets:
Equity instruments at
FVOCI 212,576 - - 212,576
----------------------------------- -------------- ------------ -------------- ----------
212,576 6,290 910,622 1,129,488
----------------------------------- -------------- ------------ -------------- ----------
(1) Includes receivable corresponding Silverstream contract of
US7.6 million.
There have been no significant transfers between Level 1 and
Level 2 of the fair value hierarchy, and no transfers into or out
of Level 3 fair value measurements.
A reconciliation of the opening balance to the closing balance
for Level 3 financial instruments other than Silverstream and the
related receivable with the contract(which is disclosed in Note 10)
is shown below:
2021 2020
US$ thousands
-------------------------------------------------- --------------------------
Balance at 1 January 326,833 206,982
-------------------------------------------------- ------------ ------------
Sales 3,349,471 2,346,142
Cash collection (3,347,886) (2,335,450)
Changes in fair value(1) (5,479) 11,324
Realised embedded derivatives during the year(1) (9,493) (10,406)
-------------------------------------------------- ------------ ------------
Balance at 30 June 313,446 218,592
-------------------------------------------------- ------------ ------------
(1 Changes in fair value and realised embedded derivatives
during the year are recognised in revenues.)
Valuation techniques
The following valuation techniques were used to estimate the
fair values:
Option commodity contracts
The Group enters into derivative financial instruments with
various counterparties, principally financial institutions with
investment grade credit ratings. The Level 2 option commodity
contracts are measured based on observable spot commodity prices,
the yield curves of the respective commodity as well as the
commodity basis spreads between the respective commodities. The
option contracts are valued using the Black-Scholes model, the
significant inputs to which include observable spot commodities
price, interest rates and the volatility of the commodity.
Option and forward foreign exchange contracts
The Group enters into derivative financial instruments with
various counterparties, principally financial institutions with
investment grade credit ratings. The Level 2 foreign currency
forward contracts are measured based on observable spot exchange
rates, the yield curves of the respective currencies as well as the
currency basis spreads between the respective currencies. The
foreign currency option contracts are valued using the
Black-Scholes model, the significant inputs to which include
observable spot exchange rates, interest rates and the volatility
of the currency.
Silverstream contract (see note 10)
The fair value of the Silverstream contract is determined using
a valuation model. The term of the derivative, which is based on
Sabinas' life of mine, is currently 34 years and the valuation
model utilises a number of inputs that are not based on observable
market data due to the nature of these inputs and/or the duration
of the contract. Inputs that have a significant effect on the
recorded fair value are the volume of silver that will be produced
and sold from the Sabinas mine over the contract life, the future
price of silver, future foreign exchange rates between the Mexican
peso and US dollar, future inflation and the discount rate used to
discount future cash flows.
The estimate of the volume of silver that will be produced and
sold from the Sabinas mine requires estimates of the recoverable
silver reserves and resources, the related production profile based
on the Sabinas mine plan and the expected recovery of silver from
ore mined. The estimation of these inputs is subject to a range of
operating assumptions and may change over time. Estimates of
reserves and resources are updated annually by Peñoles, the
operator and sole interest holder in the Sabinas mine and provided
to the Company. The production profile and estimated payable silver
that will be recovered from ore mined is based on the latest plan
and estimates, also provided to the Company by Peñoles. The inputs
assume no interruption in production over the life of the
Silverstream contract and production levels which are consistent
with those achieved in recent years.
Management regularly assesses a range of reasonably possible
alternatives for those significant unobservable inputs described
above, and determines their impact on the total fair value. The
significant unobservable inputs are not interrelated. The fair
value of the Silverstream contract is not significantly sensitive
to a reasonable change in future inflation and exchange rate,
however, it is to a reasonable change in future silver price and
the discount rate used to discount future cash flows.
The following table demonstrates the sensitivity of the
Silverstream contract valuation to reasonably possible changes in
those inputs. There are no changes to equity other than those
derived from the changes in profit before tax.
Effect on
Increase/ profit before
30 June 2021 (decrease) tax: increase/
(decrease)
US$ thousands
---------------- ------------- ----------------
Silver price 10% 71,625
(10%) (71,625)
---------------- ------------- ----------------
25 basis
Interest rate point (12,609)
(20 basis
point) 10,454
---------------- ------------- ----------------
Effect on
Increase/ profit before
31 December 2020 (decrease) tax: increase/
(decrease)
US$ thousands
-------------------- ------------- ----------------
Silver price 45% 338,484
(45%) (338,484)
-------------------- ------------- ----------------
25 basis
Interest rate point (14,689)
(20 basis
point) 12,239
-------------------- ------------- ----------------
Equity investments
The fair value of equity investments is derived from quoted
market prices in active markets.
Interest-bearing loans
The fair value of the Group's interest-bearing loan is derived
from quoted market prices in active markets.
Receivables from provisional sales
Sales of concentrates, precipitates and doré bars are
'provisionally priced' and revenue is initially recognised using
this provisional price and the Group's best estimate of the
contained metal. Revenue is subject to final price and metal
content adjustments subsequent to the date of delivery. This price
exposure is considered to be an embedded derivative and therefore
the entire related trade receivable is measured at fair value.
At each reporting date, the provisionally priced metal content
is revalued based on the forward selling price for the quotational
period stipulated in the relevant sales contract. The selling price
of metals can be reliably measured as these metals are actively
traded on international exchanges but the estimated metal content
is a non-observable input to this valuation.
.
c. Capital management
The primary objective of the Group's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios that support its business and maximise shareholder value.
Management considers capital to consist of equity and
interest-bearing loans, including loans from related parties, as
disclosed in the balance sheet, excluding net unrealised gains or
losses on revaluation of cash flow hedges and debt instruments. In
order to ensure an appropriate return for shareholder's capital
invested in the Group management thoroughly evaluates all material
projects and potential acquisitions and approves them at its
Executive Committee before submission to the Board for ultimate
approval, where applicable. The Group's dividend policy is based on
the profitability of the business and underlying growth in earnings
of the Group, as well as its capital requirements and cash flows,
including cash flows from the Silverstream.
One of the Group's metrics of capital is cash and other liquid
assets which as at 30 June 2021 and 2020 consisted of only cash and
cash equivalents.
[1] Adjusted revenues are the revenues shown in the income
statement adjusted to add back treatment and refining charges and
the effects of metals prices hedging. The Company considers this is
a useful additional measure to help understand underlying factors
driving revenue in terms of volumes sold and realised prices.
[2] 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.
[3] Prior to Silverstream valuation effects.
[4] Free cash flow calculated as net cash flow after the effect
of foreign exchange on cash, less dividend payments.
[5] Cash and other liquid funds are disclosed in note 18(d) to
the Financial Statements
[6] Net Debt is calculated as debt at 30 June 2020 less Cash and
other liquid funds at 30 June 2020 divided by the EBITDA generated
in the last 12 months
[7] Adjusted production cost is calculated as total production
costs less depreciation, profit sharing and the effects of exchange
rate hedging.
[8] Cost inflation of 8.6% (including the effect of the Mexican
peso revaluation) had an adverse effect of US$40.8 million (the sum
of iii and iv).
[9] Net debt is calculated as debt at 30 June 2020 less Cash and
other liquid funds at 30 June 2020 divided by the EBITDA generated
in the last 12 months
[10] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[11] 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.
[12] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[13] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[14] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[15] Treatment and refining charges include the cost of
treatment and refining as well as the margin charged by the
refiner.
[16] 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.
[17] Unproductive costs primarily include unabsorbed production
costs such as fixed production cost (labour cost and depreciation)
incurred in Minera San Julián due to a shortfall in electricity in
February 2021 and fixed costs incurred in Minera Penmont during the
temporary suspension of mining activities at the beginning of the
COVID-19 pandemic and other costs related to the subsequent ramp-up
of operations and the underutilisation of production capacity once
mining activity was resumed. Unproductive costs are recognised
within cost of sales but excluded from adjusted production
costs.
[18] Cost inflation of 8.6% (including the effect of the Mexican
peso revaluation) had an adverse effect of US$40.8 million (the sum
of iii and iv).
[19] Cash and other liquid funds are disclosed in note 18(c) to
the consolidated financial statements.
[20] Cash and other liquid funds are disclosed in note 18(c) to
the consolidated financial statements.
[21] Net debt is calculated as debt at 30 June 2020 less Cash
and other liquid funds at 30 June 2020 divided by the EBITDA
generated in the last 12 months.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR SSUSFDEFSEIA
(END) Dow Jones Newswires
August 03, 2021 02:00 ET (06:00 GMT)
Fresnillo (LSE:FRES)
과거 데이터 주식 차트
부터 10월(10) 2024 으로 11월(11) 2024
Fresnillo (LSE:FRES)
과거 데이터 주식 차트
부터 11월(11) 2023 으로 11월(11) 2024
