TIDMFRES
RNS Number : 2400W
Fresnillo PLC
31 July 2018
Fresnillo plc
21 Upper Brook Street
London W1K 7PY
United Kingdom
www.fresnilloplc.com
31 July 2018
Fresnillo plc interim results
for the six months to 30 June 2018
Financial highlights (1H18/1H17 comparisons)
-- Adjusted revenues[1] of US$1,189.9m, up 11.3%
-- Gross profit and EBITDA[2] of US$502.2m and US$566.9m, up 9.2% and 8.5%,
respectively
-- Silverstream valuation, a non-cash item, had an adverse
effect on profit before income tax, which came down 16.6% to
US$323.0m
-- In addition, profit for the period of US$229.3m, down 26.1%,
was adversely impacted by changes in the MXP/USD exchange rate and
inflation rate on deferred taxes (non-cash item)
-- Basic and diluted EPS from continuing operations of US$31.2
cents per share, adjusted EPS of US$33.3 cents per share, down
25.5% and 9.3%
-- Cash generated from operations, before changes in working capital of US$575.9m, up 6.6%
-- Net cash from operating activities of US$366.6m, up 3.5%
-- Strong balance sheet with cash and other liquid assets as at 30 June 2018 of US$708.6m
-- Interim dividend of US$78.8m (10.7 US cents per share)
Operational highlights (1H18/1H17 comparisons)
-- Silver production of 30.8 moz (including Silverstream), up
9.7%, and gold production of 465 koz, up 4.4%
-- Ongoing tests at the Herradura leaching pads have resulted in
an increase of 98.9 koz of gold in inventory as of 1 January
2018
-- Full year consolidated production guidance has been revised
marginally: total gold production to 900 - 930 koz (previously 870
- 900 koz) and total silver production to 64.5 - 67.5 moz
(previously 67 - 70 moz) including Silverstream
-- Pyrites plant at Saucito commissioned with minimal delays and on budget
-- Final testing of second line of the dynamic leaching plant is
on track with commercial production expected in 3Q18.
Highlights for 1H18
US$ million unless H1 18 H1 17 % change
stated
Silver Production
(koz) * 30,764 28,044 9.7
-------- -------- ---------
Gold Production (oz) 465,299 445,769 4.4
-------- -------- ---------
Total revenues 1,115.0 995.8 12.0
-------- -------- ---------
Adjusted revenues(1) 1,189.9 1,069.5 11.3
-------- -------- ---------
Exploration expenses 78.3 64.2 21.9
-------- -------- ---------
EBITDA(2) 566.9 522.5 8.5
-------- -------- ---------
Profit for the period 229.3 310.1 (26.1)
-------- -------- ---------
Cash generated by
operations before
changes in working
capital 575.9 540.3 6.6
-------- -------- ---------
Basic and Diluted
EPS (US$)(3) 0.312 0.419 -25.5
-------- -------- ---------
Dividend per ordinary
share (US$) 0.107 0.106 0.9
-------- -------- ---------
* 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 costs and the
effects of gold, lead and zinc 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 gross profit plus
depreciation less administrative, selling and exploration
expenses
(3) The weighted average number of shares for H1 2017 and H1
2016 was 736.9m. See Note 8 in the Interim Consolidated Financial
Statements.
Octavio Alvídrez, Chief Executive Officer of Fresnillo plc,
said:
"I am pleased to report a robust performance in the first half,
with silver and gold production both up in the period, and our new
San Julián (phase II) mine making a strong contribution to overall
production, while gold production at Herradura continues to
outperform. We have marginally adjusted full year production
guidance to reflect a stronger performance in gold and short term
challenges at our silver operations though consolidated guidance
remains unchanged.
In line with our strategy to actively manage and strengthen our
asset portfolio, we are making good progress on the broader
development pipeline which continues to provide a strong foundation
for long term sustainable growth.
The Pyrites Plant at Saucito has been commissioned and final
testing at the Second Dynamic Leaching Plant is on track. Both
projects will make a meaningful contribution to overall 2018
production.
Once again we have maintained an extensive exploration programme
during the first half and remain confident these proactive
activities will provide a solid foundation on which our long term
future growth will be built. We continue to believe the vast
potential of our exploration pipeline is a core differentiators for
Fresnillo.
Looking ahead, we remain confident in our full year
expectations. We will continue to maintain this disciplined
approach to investment, to support our strategy and deliver
shareholder returns. We are focused on efficiency and controlling
costs to underpin projects, while driving performance improvements
at our mines."
Commentary on the Group's results
Operating results
Fresnillo plc's solid operating performance benefited mainly
from the contribution of San Julián (phase II) and the higher gold
production at Herradura.
First half silver production (including Silverstream) increased
9.7% on 1H17 mainly as a result of the start of operations at San
Julián JM (Phase II) in July 2017. This was partially offset by
lower ore grades at Fresnillo and Saucito and the expected lower
ore grade at the San Julián Veins (Phase I).
First half gold production increased 4.4% vs. 1H17 benefiting
from higher ore grade and changes in gold inventories at Herradura;
on-going tests at the leaching pads led to an increase of 98.9 koz
of gold in inventory as of 1 January 2018, with ounces subsequently
decreasing during the period. In addition gold production increased
due to higher ore grade and volume of ore processed at Saucito.
These factors more than compensated for the lower ore grade at
Ciénega and San Julián Veins (Phase I).
First half by-product lead production increased 8.8% vs. 1H17
due to the start up of San Julián JM (Phase II) and the higher ore
grade at Fresnillo. These factors more than offset the lower ore
grade and recovery rate at Ciénega and the lower ore grade at
Saucito.
First half by-product zinc production increased vs. 1H17 as a
result of the start up of operations at San Julián JM (Phase II),
the higher ore grade at Fresnillo and higher ore grade, recovery
rate and volume of ore processed at Saucito. These factors more
than compensated for the lower ore grade and recovery rate at
Ciénega.
These operational results contributed to achieving strong
financial results and maintaining attractive profit margins.
Fresnillo plc reported two fatalities in 1H18. Following
investigations, management has taken certain measures to address
and prevent the root causes of fatal injuries and decided to
implement our "I care, we care" programme to develop risk
competency through education of leaders, supervisors and the
workforce.
Financial results
Total revenues increased 12.0% half on half to US$1,115.0
million in 1H18due to the higher volumes of all metals sold (82.7%)
and higher metal prices, except for silver (17.3%).
In particular, the average realised gold price increased 5.0%
from US$1,250.3 per ounce in 1H17 to US$1,312.8 per ounce in 1H18,
whilst the average realised zinc and lead prices increased 16.8%
and 7.6% respectively on 1H17. However, the average realised silver
price decreased 5.5% from US$17.4 per ounce in 1H17 to US$16.5 per
ounce in 1H18.
Adjusted production costs[3] of US$429.9 million increased by
25.4% over 1H17. This increase resulted mainly from higher
stripping costs at Herradura, increases in maintenance and
consumables and service costs, additional production costs from the
start-up of San Julián (phase II), lower volume of development ore
with no associated production costs at Saucito in 1H18, the adverse
effect of the 2.4% revaluation of the Mexican peso against the US
dollar and cost inflation mainly related to higher unit fees of
contractors, operating materials and increases in wages to
personnel.
The higher adjusted production costs and depreciation, mitigated
by the positive effect of the changes in gold inventories at
Herradura, resulted in an increase of 14.4% in cost of sales over
1H17.
Notwithstanding, the increase in revenues more than offset the
increase in cost of sales, resulting in a 9.2% increase in gross
profit to US$502.2 million.
Administrative expenses rose by 16.1% mainly due to an increase
in the volume of services provided by Servicios Industriales
Peñoles, S.A.B de C.V. in relation mainly to San Julián (phase II)
and an increase in fees paid to advisors.
As expected, exploration expenses of US$78.3 million rose 21.9%
over 1H17 due to the intensive exploration programme undertaken in
our operating mining districts to convert resources into reserves
and direct mine development.
The higher gross profit, partially offset by higher
administrative and exploration expenses resulted in an 8.5%
increase in EBITDA. However, EBITDA margin slightly decreased from
52.5% in the first half of 2017 to 50.8% in the same period of
2018.
Other expenses (non-operating) of US$2.3 million, mainly related
to the maintenance and rehabilitation costs at Las Torres closed
mine, compared unfavourably versus the US$23.4 million gain
registered in 1H17, which resulted mainly from the sale of
non-strategic mining claims to Argonaut Gold Inc.
During the period, there was a negative revaluation of the
Silverstream contract of US$21.8 million due primarily to the
increase in the reference discount rate (LIBOR) and to a lesser
extent, a decrease in silver resources at the Sabinas mine, and a
lower forward price of silver. This compared adversely to the
US$54.8 million positive revaluation recognised in 1H17.
An US$11.8 million foreign exchange loss was recorded in 1H18,
as a result of the realised transactions in the period and the
marginal devaluation of the Mexican peso against the US dollar on
the value of peso-denominated net monetary assets. This compared
adversely against the US$3.8 million foreign exchange gain
recognised in 1H17.
Net finance costs of US$15.1 million mainly reflected the
interest recognised in the income statement in relation to the
US$800 million debt facility raised in November 2013. This
positively compared against the US$49.2 million finance costs in
1H17 that included the mark-to market time value of the outstanding
gold hedging programme, which is now recognised in other
comprehensive income rather than in the income statement in 1H18,
in accordance with new accounting standards. In contrast, a US$35.2
million loss was recognised in 1H17.
As a result of the adverse effects mentioned above, profit from
continuing operations before income tax decreased 16.6% from
US$387.4 million to US$323.0 million.
Income tax expense increased 33.3% to US$82.8 million, despite
the fact that profit before taxes decreased. This was mainly caused
by the impact of changes in the Mexican peso/US dollar exchange
rate and in the inflation rate on deferred taxes (a non-cash item).
The effective tax rate, excluding the special mining right, was
25.6%, which was below the 30% statutory tax rate.
As a result of the above, net profit for the period of US$229.3
million decreased 26.1% compared to 1H17.
Cash flow generated by operations, before changes in working
capital, increased by 6.6% to US$575.9 million.
Capital expenditure totalled US$352.2 million, an increase of
33.3% compared to 1H17. Investments during the period included
ongoing construction of the pyrites plant and the second line of
the dynamic leaching plant at Herradura, development at Fresnillo,
Saucito and Ciénega and sustaining capex at the open pit mines.
Other uses of funds during the period were income tax, special
mining right and profit sharing paid of US$145.3 million (US$211.9
million in 1H17) and dividends paid of US$219.4 million (US$158.4
million in 1H17).
The Group maintained a strong balance sheet. Cash and other
liquid assets as at 30 June 2018 amounted to US$708.6 million, a
19.9% decrease compared to the US$884.9 million in short term funds
at the end of June 2017 and a 20.9% decrease over the year-end
total of US$896.0 million. Taking into account the cash and other
liquid assets of US$708.6 million and the US$799.5 million
amortised cost of the Senior Notes, Fresnillo plc's net debt was
US$90.9 million as at 30 June 2018. The Group had a net cash
position of US$88.4 million as at 30 June 2017.
The Board of Directors has declared an interim dividend of 10.7
US cents per share totaling US$78.8 million to be paid on 7
September 2018 to shareholders on the register on 10 August 2018.
This decision was made after a comprehensive review of the
Company's and Group's financial situation, ensuring that the Group
is well placed to meet its current and future financial
requirements, including its development and exploration
projects.
Growth
Fresnillo plc maintains a disciplined approach to profitable
growth by investing in a high quality pipeline of projects and
prospects. The pyrites plant at Saucito was commissioned with
minimal delays and on budget in the 2Q18. The construction of the
second line of the dynamic leaching plant was also completed and
final testing remains on track with commercial production expected
in 3Q18.
In Juanicipio, exploration and development continued over the
first six months of 2018. The feasibility study was concluded and
the next stages are focused on presenting this to the Technical
Committee of Juanicipio and each partner's Board.
An intensive exploration programme, including drilling at 18
areas, was conducted during the period. Interesting results were
obtained at Centauro Profundo, San Julián, Fresnillo and San Juan,
whilst mapping and sampling have located additional new areas that
merit drill testing at the Fresnillo and San Julián districts.
We continue to expect full year 2018 total risk capital
investment in exploration of US$180 million and capital expenditure
for this year remains at US$755 million.
Outlook
Our consolidated production guidance was recently revised: total
gold production guidance was increased to 900-930 thousand ounces
(870-900 thousand ounces originally) and total silver production
guidance (including Silverstream) was decreased to 64.5-67.5
million ounces (original guidance of 67-70 million ounces) due
mainly to issues associated with less availability of process water
at San Julián.
We will continue to focus on improving performance at our mines,
whilst reducing costs and investing in initiatives that could
render higher productivity and efficiencies.
We have a long experience in exploration, mining and, together
with our proven strategy, are confident that we will continue to
create sustained value for stakeholders in the long-term, balancing
growth with returns and maintaining a solid financial position.
Presentation for Analysts
Octavio Alvídrez, Chief Executive Officer and Mario Arreguín,
Chief Financial Officer, will host a presentation for analysts on
Tuesday 31(st) July at 9am (BST) at Bank of America Merrill Lynch,
2 King Edward St, London EC1A 1HQ
For analysts unable to attend dial in details are:
Dial-in number: UK 0800 358 6377
US 800 458 4121
MX 001 800 062 2969
Access code: 7495569
A webcast can be accessed at: www.fresnilloplc.com
For further information, please visit our website:
www.fresnilloplc.com or contact:
Fresnillo plc Tel: +44 (0)20 7399 2470
London Office
Gabriela Mayor, Head of Investor
Relations
Patrick Chambers
Mexico City Office Tel: +52 55 52 79 3206
Ana Belem Zárate
Powerscourt Tel: +44 (0)20 7549 0997
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), Herradura, Soledad-Dipolos(1) , Noche Buena and San Julián
(phase I and II), two development projects - the pyrites plant, and
second line of DLP at Herradura, and four advanced exploration
projects - Orisyvo, Juanicipio, Las Casas Rosario & Cluster
Cebollitas and Centauro Deep, as well as a number of other long
term exploration prospects. In total, Fresnillo plc has mining
concessions covering approximately 1.8 million hectares in Mexico
and 700 thousand hectares in Peru.
Fresnillo plc has a strong and long tradition of exploration,
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, producing 65 million ounces
of silver per year by 2018, having already surpassed the gold
target of 750,000 ounces.
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.
(1) Operations at Soledad-Dipolos are currently suspended.
Operational Review
Production
Production H1 2018 H1 2017 % change
Silver (koz) 28,694 25,752 11.4
-------- -------- ---------
Silverstream prod'n
(koz) 2,070 2,292 -9.7
-------- -------- ---------
Total Silver prod'n
(koz) 30,764 28,044 9.7
-------- -------- ---------
Gold (oz) 465,299 445,769 4.4
-------- -------- ---------
Lead (t) 24,853 22,846 8.8
-------- -------- ---------
Zinc (t) 41,054 28,725 42.9
-------- -------- ---------
First half silver production (including Silverstream) increased
9.7% on 1H17 mainly as a result of the start of operations at San
Julián JM (Phase II) in July 2017. This was partially offset by
lower ore grades at Fresnillo and Saucito and the expected lower
ore grade at the San Julián Veins (Phase I).
The Silverstream contribution decreased as expected due to the
lower silver ore grade at the Sabinas mine.
First half gold production increased 4.4% vs. 1H17 benefiting
from higher ore grade and changes in gold inventories at Herradura;
on-going tests at the leaching pads led to an increase of 98.9 koz
of gold in inventory as of 1 January 2018, with ounces subsequently
decreasing during the period. In addition gold production increased
due to higher ore grade and volume of ore processed at Saucito.
These factors more than compensated for the lower ore grade at
Ciénega and San Julián Veins (Phase I).
First half by-product lead production increased 8.8% vs. 1H17 as
a result of the start up of San Julián JM (Phase II) and the higher
ore grade at Fresnillo. These factors more than offset the lower
ore grade and recovery rate at Ciénega and the lower ore grade at
Saucito.
First half by-product zinc production increased vs. 1H17 as a
result of the start up of operations at San Julián JM (Phase II),
the higher ore grade at Fresnillo and higher ore grade, recovery
rate and volume of ore processed at Saucito. These factors more
than compensated for the lower ore grade and recovery rate at
Ciénega.
2018 full year consolidated production guidance has been revised
marginally: total gold production guidance is now 900-930 thousand
ounces compared to our original guidance of 870-900 thousand ounces
and total silver production guidance (including Silverstream) is
64.5-67.5 million ounces compared to our original guidance of 67-70
million ounces.
Fresnillo mine production
H1 2018 H1 2017 % change
Ore Processed (t) 1,258,316 1,258,492 -0.0
---------- ---------- ---------
Production
---------- ---------- ---------
Silver (koz) 8,129 8,930 -9.0
---------- ---------- ---------
Gold (oz) 21,384 20,728 3.2
---------- ---------- ---------
Lead (t) 10,835 10,153 6.7
---------- ---------- ---------
Zinc (t) 16,846 14,634 15.1
---------- ---------- ---------
Ore Grades
---------- ---------- ---------
Silver (g/t) 222 240 -7.5
---------- ---------- ---------
Gold (g/t) 0.68 0.66 2.6
---------- ---------- ---------
Lead (%) 0.95 0.89 7.1
---------- ---------- ---------
Zinc (%) 1.82 1.63 11.7
---------- ---------- ---------
First half silver production decreased vs. 1H17 as a result of
the lower than expected ore grade and, to a lesser extent, lower
recovery rate.
The lower ore grade was primarily explained by the temporary
restricted access to higher grade areas of the mine as a result of
the delays in development and mine preparation following lower than
expected productivity from contractors. This was due to a high
turnover of contractor personnel which has the knock-on effect of
delaying the maintanance programme thereby resulting in lower
equipment availability. To mitigate this, the Company will: i) add
a new contractor; ii) review, adapt and improve the maintanance
programme; and iii) purchase additional equipment, to be operated
by our own team alongside our contractors, in order to provide us
with higher degree of control to increase development rates and
mine preparation.
We expect that with these measures, development rates will
gradually increase from the current average of 3,130 m/month.
Year to date by-product gold and lead production increased 3.2%
and 6.7% vs. 1H17 mainly due to higher ore grades.
First half by-product zinc production increased 15.1% vs. 1H17
as a result of higher ore grade and to a lesser extent, improved
recovery rate.
Saucito mine production
H1 2018 H1 2017 % change
Ore Processed (t) 1,396,753 1,338,370 4.4
---------- ---------- ---------
Production
---------- ---------- ---------
Silver (koz) 10,067 10,821 -7.0
---------- ---------- ---------
Gold (oz) 39,788 33,859 17.5
---------- ---------- ---------
Lead (t) 8,510 9,442 -9.9
---------- ---------- ---------
Zinc (t) 11,465 10,062 13.9
---------- ---------- ---------
Ore Grades
---------- ---------- ---------
Silver (g/t) 262 293 -10.6
---------- ---------- ---------
Gold (g/t) 1.20 1.08 11.2
---------- ---------- ---------
Lead (%) 0.72 0.84 -14.6
---------- ---------- ---------
Zinc (%) 1.31 1.26 4.0
---------- ---------- ---------
Year to date silver production decreased 7.0% vs. 1H17 as a
result of lower than expected ore grades and increased dilution. We
are now using smaller sized equipment for the narrower veins in
order to decrease dilution in these areas.
First half by-product gold and zinc production increased 17.5%
and 13.9% respectively vs. 1H17 as a result of higher ore grades,
recovery rates and volumes of ore processed. Year to date
by-product lead production decreased 9.9% vs. 1H17 as a result of a
lower ore grade.
We continued to invest in increasing development at new areas
and deepening the Jarillas shaft to maintain production and prevent
increases to material handling costs. In addition, production at
Natalias, an area between Saucito and Fresnillo, continued to ramp
up and access to the Huizache veins was gained during 1H18 as a
result of the increased development.
The leaching plant of the pyrites plant at Saucito was
commissioned with minor delays in 2Q18 and it is expected to ramp
up to full capacity within the following months. Further details
are provided in the "Growth projects" section below.
Ciénega mine production
H1 2018 H1 2017 % change
Ore Processed (t) 650,885 636,680 2.2
-------- -------- ---------
Production
-------- -------- ---------
Gold (oz) 33,066 36,358 -9.1
-------- -------- ---------
Silver (koz) 2,757 2,786 -1.0
-------- -------- ---------
Lead (t) 2,687 3,251 -17.3
-------- -------- ---------
Zinc (t) 2,237 4,030 -44.5
-------- -------- ---------
Ore Grades
-------- -------- ---------
Gold (g/t) 1.66 1.89 -12.5
-------- -------- ---------
Silver (g/t) 154 161 -4.2
-------- -------- ---------
Lead (%) 0.67 0.78 -14.3
-------- -------- ---------
Zinc (%) 0.74 1.08 -31.4
-------- -------- ---------
First half gold production decreased 9.1% vs. 1H17 primarily due
to the lower than expected ore grade following the depletion of
higher grade veins at Taspana, Las Casas and San Ramón. This was
mitigated by the higher volume of ore processed due to the
increased availability of equipment following improvements in the
maintenance programme. Year to date silver production was in line
with 1H17.
First half by-product lead and zinc production decreased when
compared to the same periods of 2017 as a result of lower ore
grades and recovery rates, which were mitigated by the higher
volume of ore processed.
San Julián mine production
1H 18 1H 17 % change
Ore Processed Phase I Veins (t) 600,517 614,423 -2.3
---------- -------- ---------
Ore Processed Phase II JM (t) 1,071,720 - N/A
---------- -------- ---------
Total production at San Julián
---------- -------- ---------
Gold (oz) 39,888 41,041 -2.8
---------- -------- ---------
Silver (koz) 7,100 2,979 138.3
---------- -------- ---------
Production Phase I Veins
---------- -------- ---------
Gold (oz) 38,695 41,041 -5.7
---------- -------- ---------
Silver (koz) 2,707 2,979 -9.1
---------- -------- ---------
Production Phase II
JM
---------- -------- ---------
Gold (oz) 1,193 - N/A
---------- -------- ---------
Silver (koz) 4,393 - N/A
---------- -------- ---------
Lead (t) 2,821 - N/A
---------- -------- ---------
Zinc (t) 10,507 - N/A
---------- -------- ---------
Ore Grades Phase I Veins
---------- -------- ---------
Gold (g/t) 2.04 2.18 -6.6
---------- -------- ---------
Silver (g/t) 151.71 164.16 -7.6
---------- -------- ---------
Ore Grades Phase II
JM
---------- -------- ---------
Gold (g/t) 0.08 - N/A
---------- -------- ---------
Silver (g/t) 151.72 - N/A
---------- -------- ---------
Lead (%) 0.41 - N/A
---------- -------- ---------
Zinc (%) 1.28 - N/A
---------- -------- ---------
San Julián Veins (Phase I)
Volumes of ore processed were maintained at 3,585 tpd, 19.5%
above nameplate capacity of 3,000 tpd. First half silver production
decreased 9.1% vs. 1H17 as a result of: i) the expected lower ore
grade due to less availability of the higher silver ore grade
areas; and ii) a lower volume of ore processed as a result of the
low water availability, restricting processing capacity. With some
other initiatives and the arrival of the rainy season, full
processing capacity has now been restored.
The construction of the water reservoir, aimed at providing a
consistent source of water, has been delayed as a result of a
longer than expected permitting process delaying the grant of
environmental permits. The company is making efforts to accelerate
this process and is also looking for alternate sources of
water.
Year to date gold production decreased vs. 1H17 as a result of
lower volumes of ore processed and lower ore grades due to the
previously mentioned factors, however these were mitigated by the
higher recovery rates.
San Julián (Phase II - JM disseminated ore body)
San Julián (phase II) started operations in July 2017 and is now
operating at a rate of almost 6,400 tpd, which is above its
nameplate capacity of 6,000 tpd.
Silver production reached 4.4 moz in 1H18. However, silver ore
grade of 151.7 g/t was below the guidance of 185 g/t for the full
year.
The silver ore grade for the full year 2018 is expected to be in
the range of 145-155 g/t, lower than the previously guided ore
grade, due to the extraction of ore from lower grade areas of the
mine as well as processing ore from the development stockpile
instead of mining the orebody according to the original plan. This
was done as a temporary alternate production plan as stope
back-filling could not have been done at the normal pace due to
lower availability of water, which has now been restored with the
arrival of the rainy season and other measures taken by the
Group.
Herradura mine production
H1 2018 H1 2017 % change
Ore Processed (t) 11,590,068 13,316,161 -13.0
----------- ----------- ---------
Total Volume Hauled (t) 67,713,885 61,971,696 9.3
----------- ----------- ---------
Production
----------- ----------- ---------
Gold (oz) 243,129 224,009 8.5
----------- ----------- ---------
Silver (koz) 604 222 172.1
----------- ----------- ---------
Ore Grades
----------- ----------- ---------
Gold (g/t) 0.72 0.64 11.2
----------- ----------- ---------
Silver (g/t) 2.22 0.91 142.8
----------- ----------- ---------
First half gold production increased on 1H17 as a result of: i)
the ongoing changes in gold inventories; on-going tests at the
leaching pads led to an increase of 98.9 koz of gold in inventory
as of 1 January 2018, with ounces subsequently decreasing during
the period; ii) an increase in the ore grade at the Dynamic
Leaching Plant as a higher volume of ore was being processed from
the higher grade Valles area; and iii) a higher speed of recovery
due to an intensive targeted irrigation programme and better
dilution. These factors more than compensated for the lower volume
of ore processed.
In 2017, as part of the future mine plan, Fresnillo decided to
construct a new leaching pad in a separate area of the Herradura
mine. To reduce the hauling distance from the pit to the new pad,
the Group constructed an access route through certain existing
leaching pads, removing and redepositing the ore in the process.
These works allowed the Group to perform assays and verify certain
characteristics of the ore, including the humidity of the ore
deposited and the grade of gold in solution. The testing of those
assays commenced in 2018 and is ongoing.
As a result of the information obtained to date, the Group
updated its estimate of the recoverable remaining gold content in
the inventories at the leaching pads resulting in an increase of
98.9 thousand ounces of gold as at 1 January 2018. This represents
1.7% of the total gold content deposited from the inception of the
mine to 31 December 2017.
Management expects to finalise the remaining testing by the year
end. The additional results may further increase management's
estimates.
In 1H18, we commenced the installation of vibrating screens in
the first line of the dynamic leaching plant. This initiative will
increase gold recovery by 3-4% and is expected to become
operational in 3Q18.
Noche Buena mine production
H1 2018 H1 2017 % change
Ore Processed (t) 8,965,705 9,012,820 -0.5
----------- ----------- ---------
Total Volume Hauled (t) 42,594,558 43,355,636 -1.8
----------- ----------- ---------
Production
----------- ----------- ---------
Gold (oz) 88,043 89,774 -1.9
----------- ----------- ---------
Silver (koz) 37 14 164.3
----------- ----------- ---------
Ore Grades
----------- ----------- ---------
Gold (g/t) 0.53 0.51 4.3
----------- ----------- ---------
Silver (g/t) 0.20 0.09 115.6
----------- ----------- ---------
Year to date gold production remained at a similar level when
compared to the same period of 2017.
The priority at this mine continues to be decreasing the costs,
such as....
In 1H18, detailed engineering work was initiated in order to
implement a Carbon in Column (CiC) process at this mine. This
project will contribute to maintaining the efficiency of gold
recovery in the last years of mine life and at the neutralisation
stage, when gold content is expected to be lower. This project is
anticipated to be commissioned by year end 2019.
Growth Projects
Capital expenditure for the full year 2018 remains at around
US$755 million. Below we provide an update on each of our growth
projects that have been approved by the Board.
Pyrites Plant at the Saucito mine
The leaching plant of the pyrites plant at Saucito was
commissioned in 2Q18, following a US$50.3 million investment.
Construction of the 14,000 tpd tailings flotation plant to process
the historical and ongoing tailings from the Fresnillo mine
continued and is expected to be concluded by 2019. This facility is
expected to incur capex of US$51.4 million, which is part of the
total US$155 million capex authorised for this project. .
The pyrites plant is expected to improve overall recoveries of
silver within a range of 5% to 9% and gold between 11% to13%, and
contribute an annual production of 3.5 moz of silver and 13 koz of
gold once it reaches its full capacity in 2019.
Second Dynamic Leaching Plant at Herradura
Construction of the second line of the dynamic leaching plant
was completed in 2Q18 and final tests remain on track. Commercial
production is expected to begin in 3Q18.
This US$110 million project will extend the life of Herradura's
mine to 12 years with an average life of mine annual gold
production of 390 koz.
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 2018 approved capex and
exploration budget.
Optimisation projects
Fresnillo optimisation project
During the first half of 2018 the digging process for the
construction of the flotation plant that will contain the
additional flotation cells and cleaners commenced. This froth
flotation circuit is the second stage in this optimisation project
and the final stage would be the installation of vibrating screens
to increase the milling capacity to 9,000 tonnes per day. Capital
expenditure for this project is estimated at US$30 million and the
expansion is expected to result in an additional annual average
production of 3 million ounces of silver upon commissioning,
expected at the beginning of 2020.
Ciénega optimisation project
Development works at Taspana and the exploration campaign to
further evaluate other opportunities in the Ciénega District
continued in 1H18. However, the exploration programme at the main
Ciénega mine has identified additional mineralisation and, based on
these results, we are currently anticipating a 2,000 tpd extension
of milling capacity at the Ciénega mine.
The initial investment for this project is currently estimated
at US$55 million with production anticipated to commence at the end
of 2020. Once at full capacity, average annual production is
estimated at an additional 15 thousand gold ounces and 1.3 million
silver ounces.
Advanced exploration projects
Juanicipio
The feasibility study was concluded in 2Q18 and it is currently
being reviewed by the Technical Committee of Juanicipio. The next
stages will be to get the approval of the latter Committee and of
each partner's board. In the meantime, exploration and development
of the mine continued with 3,689 metres advanced in development in
1H18. In addition, we have also initiated discussions with the
suppliers of long time delivery equipment and contractors.
This project will be developed on a stand-alone basis and it is
expected to be commissioned in 2020, with an annual average
production of 10 million ounces of silver and 30 thousand ounces of
gold, according to the last pre-feasibility study dated June
2012.
Orisyvo
A pre-feasibility study is being carried out and is expected to
be concluded by year end. This project is now expected to commence
production by year end of 2021 or beginning of 2022, following an
estimated investment of US$350 million.
Centauro Deep
During the first half, we continued to refine the geological
model at this project, located below the existing Centauro pit.
Once the resource estimate is updated at the end of the year, we
will continue the evaluation of a potential underground mine. In
the meantime, the expansion of the pit will continue subject to the
discovery of additional mineralisation.
Guanajuato
Guanajuato is a large historic silver-gold mining district, and
thus certain infrastructure is already in place.
The Fresnillo holdings are comprised of three areas of interest:
the Gigante-Opulencia systems in the north, the Las
Torres-Peregrina targets in the centre of the district and La
Joya-Cerro Blanco in the south. Mining works began in the central
areas to further define the mineral structures.
At the end of 2017, indicated and inferred resources at this
project totalled 991 thousand ounces of gold and 69 million ounces
of silver.
Rodeo
This gold-silver project is located in Durango. In 1H18 we
continued negotiations to acquire land. Indicated and inferred
resources amounted to 1.2 million ounces of gold and 11 million
ounces of silver as of 31(st) of December 2017.
Exploration
In 1H18, US$78.3 million of exploration expenses were recorded
in the income statement, an increase of 21.9% over 1H17.
In the first six months, 253,258 metres of drilling were
completed at our operating mines, as part of the 462,000 metre
programme to direct mine development and partially convert
resources into reserves. Additionally, 179,626 metres of
exploration drilling were carried out, as part of the 398,000 metre
programme at projects.
At present, 18 areas are in drilling and interesting results
were obtained at Centauro Profundo, San Julián, Fresnillo and San
Juan, extending known ore shoots and identifying new structures.
Mapping and sampling have identified additional new areas that
merit drill testing at the Fresnillo and San Julián districts. Our
exploration teams continue working in selected areas focusing on
the favourable silver-gold belts within in Mexico, Peru, Chile and
Argentina.
Total risk capital invested in exploration for the full year
2018 is expected to be around US$180 million.
Reserves and resources estimates will be updated by the Company
and subsequently audited by SRK at year end.
Health and safety, human resources, environment and community
relations
Health & Safety
Safety continues to be our highest priority. The goal of our
Safety programme is to instil a safety culture where our workers
and contractors have the knowledge, competence and desire to work
safely. We regret to report two fatal injuries in 1H18. To improve
our safety performance we are implementing our "I care, we care"
programme in all of our operations. The programme aims to develop
risk competency through education of leaders, supervisors and the
workforce. It fosters coaching and positive incentives and a
comprehensive review and enhancement of our Critical Control Risk
Protocols and Emergency Response Teams.
We strive to keep our workforce healthy and prevent occupational
diseases. The goal of our Occupational Health programme is to
prevent, detect and treat work-related illnesses amongst our
employees and contractors. The Mexican National Insurance Institute
confirmed six new cases of occupational diseases in our workforce
in 1H18. We have enhanced our environmental monitoring programme in
our operations along with industrial hygiene action plans.
Preventive care and the promotion of healthier lifestyles can limit
certain chronic diseases and enhance overall wellness and fitness
for work. Our Healthy Lifestyles programme supports healthy eating
habits and the prevention and control of obesity-related diseases.
This programme includes raising awareness (doing exercise, healthy
diet tips, etc.) and sessions with nutritionists and
psychologists.
Environment
Optimising our use of resources, curbing any negative impact of
our activities and being transparent and accountable regarding our
environmental footprint are crucial elements of sustainable mining
and help us to retain our social licence to operate. Our
environmental management system ensures effective compliance with
regulations. Our operations in Fresnillo, Saucito, Ciénega and
Penmont are certified in ISO 14,001. In 2018 Herradura and Saucito
obtained the Environmental Excellence Award from the Environmental
Authorities in Mexico. This is the first time that this award is
granted to the mining industry in Mexico. In the Penmont district,
the Herradura and Noche Buena mines have the 'Cyanide Code'
certification. We disclosed our environmental performance in the
water and climate change programmes of the CDP (formerly known as
the Carbon Disclosure Project) and the Mexican GHG voluntary
reporting programme "GEI Mexico".
Community Relations
Our social licence to operate is our most valuable intangible
asset. Our communities are our strategic partners. We earn and
maintain their trust through effective engagement and by being
accountable for our impacts - and we recognise that this is the
only way to obtain and preserve our social licence to operate. The
goal of our community relations strategy is to create mutually
beneficial relationships with our neighbouring communities.
We continued to partner the NGO International Board on Books for
Young People (IBBY), bringing books and children together through
our Picando Letras programme. This programme currently benefits
8,186 children in 66 schools - from kindergartens to high schools -
in local communities close to our Ciénega, Penmont, Saucito,
Fresnillo, San Julián, Rodeo and Gigante (Guanajuato) mines and
projects. In partnership with the National University Foundation we
organised Health Weeks in Fresnillo, Ciénega, and San Julián. In
2H18, the health weeks will be organised in Penmont and our
Guanajuato project. Our health weeks benefit over 11,000 people
during the year. We continued to promote the development of
regional value chains by participating in the established mining
clusters of Zacatecas, Chihuahua and Sonora.
People
We seek to attract, develop and retain the best people, and
engage them over the long-term. In 1H18, Fresnillo plc's workforce
totalled 4,988 employees (4,817 in 2017) and 12,464 contractors
(11,188 in 2017). The percentage of women and women managers are
respectively at 9.2% (8.9% in 2017) and 4.4% (5.7% in 2017). The
ratio of male to female salary for non-executive employees is
1.07.
Our Centre for Technical Studies (CETEF) trains mining
technicians to meet our specific needs. CETEF candidates are chosen
from the communities surrounding our operations, thus securing
talent and strengthening our social licence to operate. We
collaborate with leading educational institutions in Mexico to
attract young talent in geology, metallurgy and mining engineering,
offering students internships of varying lengths. We recruit
graduates from our pool of interns through the 'Engineers in
Training' programme.
Fresnillo plc is recognised as a Great Place to Work in Mexico,
currently ranking 22th among companies with more than 5,000
employees.
Ethics Culture
We aspire to demonstrate a well-established ethical culture
through our actions and behaviours. In 2017 we trained our
executives and managers with the assistance of the University of
Arizona. In 2018 we launched the training for the rest of the
non-unionised employees. This face to face training includes
ethical decision making, creating a culture of candour, managing
diversity and transformational leadership. A culture survey will be
deployed in 2H18 and an online course will be launched
afterwards.
Our HSECR strategies are aligned with the United Nations
Sustainable Development Goals (SDG's) and our performance was
recognised through inclusion in the STOXX Global ESG leaders and
the FTSE4Good UK 50. In addition, the Company participated in the
evaluation questionnaire of the Dow Jones Sustainability Index
(DJSI). The Company has disclosed its second Modern Slavery
Statement for 2017.
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 financial statements.
Financial Review
The interim consolidated financial statements of Fresnillo plc
for the first halves of 2018 and 2017 have been prepared in
accordance with IAS 34 "Interim Financial Reporting" as adopted by
the European Union. Management recommends reading this section in
conjunction with the Interim Financial Statements and their
accompanying Notes.
Income Statement
Income Statement Key Line Items
Six months ended 30 June
(in millions of US$)
H1 2018 H1 2017 % change
Adjusted revenues(1) 1,189.9 1,069.5 11.3
-------- -------- ---------
Lead and zinc hedging 0.0 0.0 N/A
-------- -------- ---------
Treatment & refining
charges -74.8 -73.6 1.6
-------- -------- ---------
Total revenues 1,115.0 995.8 12.0
-------- -------- ---------
Cost of sales 612.9 535.8 14.4
-------- -------- ---------
Gross Profit 502.2 460.0 9.2
-------- -------- ---------
Exploration expenses 78.3 64.2 21.9
-------- -------- ---------
EBITDA(2) 566.9 522.5 8.5
-------- -------- ---------
Profit before income
tax 323.0 387.4 -16.6
-------- -------- ---------
Special mining
right 10.9 15.1 -28.1
-------- -------- ---------
Income tax expense 82.8 62.2 33.1
-------- -------- ---------
Profit for the
period 229.3 310.1 -26.0
-------- -------- ---------
Profit for the
period, excluding
post-tax Silverstream
revaluation effects 244.6 271.7 -10.0
-------- -------- ---------
Attributable profit 230.0 308.7 -25.5
-------- -------- ---------
Attributable profit,
excluding post-tax
Silverstream revaluation
effects 245.3 270.3 -9.3
-------- -------- ---------
Basic and diluted
earnings per share
(US$/share) (3) 0.312 0.419 -25.5
-------- -------- ---------
Basic and diluted
Earnings per share,
excluding post-tax
Silverstream revaluation
effects (US$/share) 0.333 0.367 -9.3
-------- -------- ---------
(1) Adjusted revenues is the revenue shown in the income
statement adjusted to add back treatment and refining costs and the
effects of gold, lead and zinc 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 gross profit plus
depreciation less administrative, selling and exploration
expenses.
(3) The weighted average number of shares for H1 2018 and H1
2017 was 736.9m. See Note 8 in the Consolidated Financial
Statements.
Fresnillo plc's financial results rely on the Group's asset
quality, skilled personnel and management's execution capabilities.
However, there are a number of macroeconomic variables affecting
the financial results which are beyond the Group's control. A
description of these variables is provided below.
Metal prices
The average realised silver price decreased 5.5% from US$17.4
per ounce in 1H17 to US$16.5 per ounce in 1H18, whilst the average
realised gold price increased 5.0% from US$1,250.3 per ounce in
1H17 to US$1,312.8 per ounce in 1H18.
The average realised lead price increased by 7.6% to US$1.1 per
pound in 1H18, whilst the average zinc price rose 16.8% on 1H17 to
US$1.4 per pound.
Hedging
In the second half of 2014, Fresnillo plc initiated a one-off
hedging programme to protect the value of the investment made in
the Penmont acquisition. The hedging programme was executed for a
total volume of 1,559,689 oz of gold with monthly settlements until
December 2019.
The table below illustrates the expired structures and the
outstanding hedged position as of 30 June 2018.
As of 30 June
Concept 1H 2018 1H 2017 2018
Weighted Floor (usd/tonne) 1,100 1,100 1,100
-------- -------- --------------
Weighted Cap (usd/tonne) 1,423 1,424 1,423
-------- -------- --------------
Expired volume 183,216 162,390 --
-------- -------- --------------
Effect on income statement - -
Profit/(Loss) (US$ dollars)
-------- -------- --------------
Outstanding volume 529,368
-------- -------- --------------
Fresnillo plc's hedging policy remained unchanged for the
remainder of the portfolio, providing shareholders with full
exposure to gold and silver prices.
In 2017, we hedged a portion of our by-product lead and zinc
production for 2018. The table below illustrates the expired
hedging volume, the results in 1H18 and the outstanding hedged
position as of June 30(th) .
Concept As of June 30(th)
2018
Zinc* Lead*
---------- --------
Weighted Floor (US$/tonne) 2,591 2,370
---------- --------
Weighted Cap (US$/tonne) 3,716 2,735
---------- --------
Expired volume (ton) 10,584 2,880
---------- --------
Effect on income statement
Profit/(Loss) (US$ dollars) -- 8,995
---------- --------
Total outstanding volume
(tonne) 10,584 2,880
---------- --------
*Monthly settlements through December 2018
Foreign exchange rates
The average spot Mexican peso/US dollar exchange rate revalued
by 2.2% from $19.49 per US dollar in 1H17 to $19.07 per US dollar
in 1H18. This revaluation resulted in an adverse effect estimated
at US$4.0 million on the Group's production costs, as costs based
on Mexican pesos, as opposed to those denominated in or pegged to
the US dollar (approximately 45% of total costs), were higher when
converted to US dollars.
The Mexican peso/US dollar spot exchange rate at 30 June 2018
was $19.86 per US dollar, compared to the exchange rate at 31
December 2017 of $19.74 per US dollar.
Hedging
As previously reported, Fresnillo plc decided in 2016 that it
would suspend its Mexican peso exchange rate hedging programme to
hedge payment of certain peso denominated production costs. The
Group enters into certain exchange rate derivative instruments as
part of a programme to manage its exposure to foreign exchange risk
associated with the purchase of equipment denominated in Euro
(EUR), Swedish krona (SEK) and Canadian dollar (CAD).
Cost Inflation
The estimated cost inflation half on half was 3.5%, which
includes the negative effect of the 2.2% average revaluation of the
Mexican peso/US dollar exchange rate.
Labour
Unionised employees received a 7.0% increase in wages in Mexican
pesos and administrative employees at the mines received a 5.5%
increase. Taking into consideration the 2.2% average revaluation of
the Mexican peso against the US dollar, personnel costs increased
by a net 8.1% in US dollar terms.
Inflation of key operating materials in US$ terms
Unit prices of the majority of key operating materials increased
in US dollar terms. However, this was partly offset by the decrease
in the unit price of tires and steel for drilling. As a result, the
weighted average unit prices of all operating materials over the
half increased by 3.4%.
Key operating materials 1H18 VS 1H17
Reagents 15.8%
-------------
Steel balls for milling 10.0%
-------------
Lubricants 3.4%
-------------
Sodium cyanide 1.1%
-------------
Tyres -1.2%
-------------
Steel for drilling -1.7%
-------------
Weighted average of all
operating materials 3.4%
Electricity
The weighted average cost of electricity in US dollars decreased
7.0% from US$7.58 cents per kw in 1H17 to US$7.05 cents per kw in
the same period of 2018, reflecting the lower average generating
cost charged by the government owned utility company.
Diesel
The weighted average cost of diesel in US dollars increased by
5.3% from US$75.1 cents per litre in 1H17 to US$79.0 cents per
litre in 1H18.
Contractors
Contractor costs are an important component of the Group's total
costs and include costs incurred by contractors relating to
operating materials, equipment and labour. The weighted average
increase in contractor unit costs in US dollar terms was 4.8%.
Maintenance
Unit prices of spare parts to provide maintenance increased by
approximately 1.8% in US dollars in 1H18.
Others
Other cost line items included an 11.4% increase in freight, a
6.2% decline in insurance premium per US dollar of value insured
and an average inflation of 1.9% for the remaining components over
1H18.
Total revenues
Consolidated Revenues
(US$ millions)
H1 2018 H1 2017 Amount %Change
Adjusted revenues(1) 1,189.9 1,069.5 120.4 11.3
-------- -------- ------- --------
Hedging 0.0 0.0 0.0 N/A
-------- -------- ------- --------
Treatment and refining
charges -74.8 -73.6 -1.2 1.6
-------- -------- ------- --------
Total revenues 1,115.0 995.8 119.2 12.0
-------- -------- ------- --------
(1) Adjusted revenues is the revenue shown in the income
statement adjusted to add back treatment and refining costs and the
effects of gold, lead and zinc 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.
Adjusted revenues of US$1,189.9 million increased 11.3% over
1H17. This was explained mainly from the favourable effect of the
higher volumes of all metals sold estimated at US$99.6 million and
the benefit of the higher gold, zinc and lead prices partly offset
by the lower silver price, which resulted in a positive impact of
US$20.8 million.
Adjusted revenues(1) by metal
(US$millions)
H1 % H1 2017 % Volume Price Total %
2018 Variance Variance
Gold 593.0 49.8 543.9 50.9 21.4 27.7 49.1 9.0
-------- ------ -------- ------ ---------- ---------- ------ -----
Silver 432.1 36.3 413.2 38.6 42.8 (23.9) 18.9 4.6
-------- ------ -------- ------ ---------- ---------- ------ -----
Lead 55.6 4.7 46.8 4.4 5.0 3.7 8.8 18.8
-------- ------ -------- ------ ---------- ---------- ------ -----
Zinc 109.2 9.2 65.6 6.1 30.3 13.4 43.7 66.5
-------- ------ -------- ------ ---------- ---------- ------ -----
Total
revenues 1,189.9 100.0 1,069.5 100.0 99.6 20.8 120.4 11.3
-------- ------ -------- ------ ---------- ---------- ------ -----
(1) Adjusted revenues is the revenue shown in the income
statement adjusted to add back treatment and refining costs and the
effects of gold, lead and zinc 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
Changes in the contribution by metal were the result of the
relative changes in metal prices and volumes produced. Zinc was the
metal that increased its contribution to total adjusted revenues
the most, rising from 6.1% in 1H17 to 9.2% in 1H18. This was
followed by the increase in the contribution of lead to adjusted
revenues, which rose from 4.4% in 1H17 to 4.7% in 1H18. Conversely,
the contributions of gold and silver to the total adjusted revenues
decreased respectively from 50.9% in 1H17 to 49.8% in 1H18 and from
38.6% in 1H17 to 36.3% in 1H18.
San Julián (phases I and II) contributed 15.9% to the Group's
adjusted revenues with 6.3 moz silver and 38.3 koz of gold sold in
1H18. Herradura maintained its position as the largest contributor,
representing 27.6% of the Group's adjusted revenues. Saucito and
Fresnillo's contributions to adjusted revenues decreased from 23.7%
and 20.5% in 1H17 to 20.7% and 18.1% respectively in 1H18 mainly
due to the lower volumes of silver sold.
With the expansion of the Group's silver asset base, the
relative contribution to silver adjusted revenues for related mines
changed half on half. San Julián (phases I and II) represented
24.1% of silver adjusted revenues, whilst the relative
contributions from Saucito, Fresnillo and Ciénega decreased as
shown in the tables below.
The start-up of San Julián (phase II) also modified the relative
contribution to zinc adjusted revenues. This new mine represented
25.9% of total zinc adjusted revenues in 1H18, thus helping to
increase zinc's relative contribution to the Group's adjusted
revenues from 6.1% in 1H17 to 9.2% 1H18.
The contribution by metal and by mine to adjusted revenues is
expected to change further over future periods as new projects are
incorporated into the Group's operations and as precious metal
prices fluctuate.
Gold adjusted revenues by mine
H1 18 H1 17
Herradura 53.5% 51.1%
------ ------
Noche Buena 19.4% 20.4%
------ ------
San Julián 8.5% 9.5%
------ ------
Saucito 7.6% 7.1%
------ ------
Ciénega
(and San Ramón) 7.0% 7.8%
------ ------
Fresnillo 4.0% 4.1%
------ ------
TOTAL 100% 100%
------ ------
Silver adjusted revenues by mine
H1 18 H1 17
Saucito 35.5% 41.7%
------ ------
Fresnillo 28.3% 34.5%
------ ------
San Julián 24.1% 12.3%
------ ------
Ciénega
(and San Ramón) 9.7% 10.5%
------ ------
Herradura 2.4% 1.0%
------ ------
Noche Buena 0.0% 0.0%
------ ------
TOTAL 100% 100%
------ ------
Total adjusted revenues by mine
H1 18 H1 17
Herradura 27.6% 26.3%
------ ------
Saucito 20.7% 23.7%
------ ------
Fresnillo 18.1% 20.5%
------ ------
San Julián 15.9% 9.6%
------ ------
Noche Buena 9.7% 10.4%
------ ------
Ciénega 8.0% 9.5%
------ ------
TOTAL 100% 100%
------ ------
Volumes of metal in products sold
Six months ended 30 June
H1 18 H1 17 % change
SILVER (kOz)
-------- -------- ---------
Fresnillo 7,414 8,162 -9.2
-------- -------- ---------
Ciénega 2,555 2,488 2.7
-------- -------- ---------
Herradura 632 231 174.0
-------- -------- ---------
Saucito 9,279 9,881 -6.1
-------- -------- ---------
Noche Buena 5 3 66.7
-------- -------- ---------
San Julián
(phase I) 2,602 2,930 -11.2
-------- -------- ---------
San Julián 3,733 - N/A
(phase II)
-------- -------- ---------
Total Silver (kOz) 26,220 23,695 10.6
-------- -------- ---------
GOLD (Oz)
-------- -------- ---------
Fresnillo 18,176 17,890 1.6
-------- -------- ---------
Ciénega 31,603 33,924 -6.8
-------- -------- ---------
Herradura 262,162 237,041 10.6
-------- -------- ---------
Saucito 34,682 30,890 12.3
-------- -------- ---------
Noche Buena 66,794 74,402 -10.2
-------- -------- ---------
San Julián
(phase I) 37,828 40,895 -7.5
-------- -------- ---------
San Julián 473 - N/A
(phase II)
-------- -------- ---------
Total Gold (Oz) 451,718 435,042 3.8
-------- -------- ---------
LEAD (MT)
-------- -------- ---------
Fresnillo 9,964 9,301 7.1
-------- -------- ---------
Ciénega 2,461 2,990 -17.7
-------- -------- ---------
Saucito 7,837 8,524 -8.1
-------- -------- ---------
San Julián 2,716 - N/A
(phase II)
-------- -------- ---------
Total Lead (MT) 22,978 20,815 10.4
-------- -------- ---------
ZINC (MT)
-------- -------- ---------
Fresnillo 14,246 12,414 14.8
-------- -------- ---------
Ciénega 1,836 3,347 45.2
-------- -------- ---------
Saucito 9,378 8,325 12.6
-------- -------- ---------
San Julián 8,906 - N/A
(phase II)
-------- -------- ---------
Total Zinc (MT) 34,366 24,086 42.7
-------- -------- ---------
Treatment and Refining charges
Similar to previous years, the 2018 treatment and refining
charges (TRCs) per tonne and per ounce are currently being
negotiated with Met-Mex in accordance with international benchmarks
and will apply retrospectively from January 2018. Treatment and
refining charges in these Interim Financial Statements were assumed
to be the same as those which were negotiated for the full year
2017, a consistent approach taken to that in 1H17.
Treatment and refining charges in absolute terms remained
broadly flat half on half.
Cost of sales
Change
H1 18 H1 17 Amount %
------ ------ ------- -----
Adjusted production
costs(4) 429.9 343.0 87.0 25.4
------ ------ ------- -----
Depreciation and amortisation 192.8 168.0 24.9 14.8
------ ------ ------- -----
Change in work in
progress -21.7 16.0 -37.7 N/A
------ ------ ------- -----
Profit sharing 11.8 8.9 2.9 32.0
------ ------ ------- -----
Cost of sales 612.9 535.8 77.1 14.4
------ ------ ------- -----
(4 Adjusted production costs is calculated as total production
costs less depreciation, profit sharing and the effects of exchange
rate hedging.)
Cost of sales of US$612.9 million increased by 14.4% over 1H17
as a result of the following combination of factors:
-- Adjusted production costs increased by 25.4% to US$429.9
million in 1H18. The US$87.0 million increase was mainly related
to: i) higher stripping costs at Herradura together with increases
in maintenance, consumable and services costs (US$33.0 million);
ii) the additional production costs associated with higher
production resulting mainly from the start of operations at San
Julián phase II (US$32.4 million); iii) the lower volume of
development ore with no associated production costs at Saucito,
substituted by mineral extracted from the mine with cost in 1H18
(US$9.9 million); and iv) the revaluation of the average Mexican
peso/US dollar spot exchange rate (US$4.0 million). In addition,
cost inflation of 2.4% (excluding the adverse effect of the
revaluation) had an adverse effect of US$7.7 million, which is
further broken down below:
- Cost of contractors increased by US$3.0 million due to the
contract adjustments recorded during the first half of the year
with each individual contractor in Mexican pesos terms
- Cost of operating materials increased US$2.1 million
- Personnel costs, excluding profit sharing, increased by US$1.9
million as a result of the 7.0% increase in wages in Mexican
pesos
- Cost of maintenance increased by US$0.8 million
- Energy cost decreased by US$0.2 million due to lower unit
prices of electricity, partially offset by the higher unit price of
diesel
- Other cost inflation of US$0.1 million
-- Depreciation increased by US$24.9 million mainly due to the
additional asset base from San Julián.
-- The variation in change in work in progress had a positive
effect of US$37.7 million half on half. Change in work in progress
was -US$21.7 million in 1H18 mainly due to the increase in the
value of inventories on the leaching pads at Herradura (see notes
2c and 5 in the interim financial information). This compared
favourably to the US$16.0 million costs recorded in 1H17 resulting
from the decrease in inventory value at this mine.
-- Profit sharing increased by US$2.9 million to US$11.8 million
in 1H18.
Cost per tonne and cash cost per ounce
Cost per tonne is a key indicator to measure the effects of
mining inflation and cost control performance at each mine. This
indicator is calculated as total production costs, plus ordinary
mining rights less depreciation, profit sharing and exchange rate
hedging effects, divided by total tonnage processed.
COST PER TONNE*
%
--------------------- ------ ------ -------
H1 18 H1 17 Change
--------------------- ------ ------ -------
Fresnillo US$/TONNE MILLED 46.92 44.07 6.5
--------------------- ------ ------ -------
Saucito US$/TONNE MILLED 53.56 45.16 18.6
--------------------- ------ ------ -------
Ciénega US$/TONNE MILLED 68.39 64.39 6.2
--------------------- ------ ------ -------
Herradura US$/TONNE DEPOSITED 10.25 7.10 44.3
--------------------- ------ ------ -------
Noche Buena US$/TONNE DEPOSITED 6.74 7.00 -3.8
--------------------- ------ ------ -------
*Indicators for San Julian phases I and II have not been
disclosed as these are not representative, as they relate to the
start-up period, when a significant volume of ore from stock pile
is processed.
Cost per tonne across the Group were adversely impacted by: i)
the 2.2% revaluation of the average Mexican peso against the US
dollar; ii) higher unit prices of diesel (5.3%); iii) inflation in
operating materials (2.9%) and contractor fees (3.5%); and iv) the
7.0% increase in wages in Mexican pesos to unionised workers. These
adverse effects were mitigated by a 7.0% decrease in the unit price
of electricity. Additional factors affecting cost per tonne at each
mine are described below:
Fresnillo
Cost per tonne milled increased 6.5% half on half due to the
factors mentioned above together with an increase in costs related
to maintenance and development works.
Saucito
Cost per tonne milled increased 18.6% half on half primarily due
to factors mentioned above and the lower volume of development ore
processed in 1H18, which resulted in higher costs being recorded in
this period.
Ciénega
Cost per tonne milled increased 6.2% mainly as a result of the
aforementioned factors and the additional contractors hired to
increase development at the satellite mines.
San Julián (phase I and II)
Phase I - Cost per tonne milled is not considered representative
as it corresponds to the start-up period and a significant volume
of stock pile was processed during this period.
Phase II - as operations commenced in July 2017, there are no
comparable half on half figures.
Herradura
Cost per tonne increased 44.3% primarily due to the factors
mentioned above, together with the higher stripping costs charged
to production costs and longer haulage distances.
Noche Buena
Cost per tonne decreased by 3.8% as a result of the efficiencies
achieved due to the initiatives to reduce costs at this mine.
CASH COST PER OUNCE(5*)
%
H1 18 H1 17 Change
---------------- ------- -------- -------
US$ per silver
Fresnillo ounce -0.82 1.25 -165.7
---------------- ------- -------- -------
US$ per silver
Saucito ounce 1.25 1.64 -23.5
---------------- ------- -------- -------
US$ per gold
Ciénega ounce -10.60 -242.81 95.6
---------------- ------- -------- -------
US$ per gold
Herradura ounce 364.85 483.91 -24.6
---------------- ------- -------- -------
US$ per gold
Noche Buena ounce 772.79 804.12 -3.9
---------------- ------- -------- -------
Consolidated
---------------- ------- -------- -------
US$ per equiv.
gold ounce 435.97 448.59 -2.8
------------------------------- ------- -------- -------
US$ per equiv.
silver ounce 5.47 6.26 -12.5
------------------------------- ------- -------- -------
5 Cash cost per ounce is calculated as total cash cost (cost of
sales plus treatment and refining charges and mining rights less
depreciation) less revenues from by-products divided by the silver
or gold ounces sold.
(*)
*(Indicators for San Julian phases I and II have not been
disclosed as these are not representative, as they relateto the
start-up period, when a significant volume of ore from stock pile
is processed.)
Fresnillo: -US$0.82/oz (1H18) vs US$1.25/oz (1H17),
(-US$2.07/oz; -165.7%)
The decrease in cash cost per ounce was primarily driven by
higher gold, lead and zinc by-product credits and, to a lesser
extent, lower treatment and refining charges. This was partially
offset by the lower silver grade and higher cost per tonne.
Saucito: US$1.25/oz (1H18) vs US1.64/oz (1H17), (-US$0.39/oz;
-23.5%)
Cash cost per ounce decreased primarily due to higher gold and
zinc by-product credits, which were partly offset by the increase
in cost per tonne and the lower silver grade.
Ciénega: -US$10.60/oz (1H18) vs -US$242.81/oz (1H17),
(US$253.41/oz; 95.6%)
The increase in cash cost was explained by the lower gold grade,
higher cost per tonne and lower zinc, silver and lead by-product
credits. These adverse effects were mitigated by lower treatment
and refining charges.
San Julián (phase I and phase II)
Phase I - Cash cost for 2017 is not considered representative as
it corresponds to the start-up period, when a significant volume of
ore from the stock pile is processed.
Phase II - as operations commenced in July 2017, there are no
comparable half on half figures.
Herradura: US$364.85/oz (1H18) vs US$483.91/oz (1H17),
(-US$119.06/oz; -24.6%)
Cash cost per gold ounce decreased mainly as a result of the
higher gold ore grade and the favourable effect of the increase in
gold inventories on the leaching pads. This was partially offset by
the higher cost per tonne.
Noche Buena: US$772.79/oz (1H18) vs US$804.12/oz (1H17),
(-US$31.33/oz; -3.9%)
The decrease in cash cost was driven by the higher gold ore
grade and the lower cost per tonne.
All in sustaining cost
H1 18 H1 17 Change %
US$ per silver
Fresnillo ounce 6.79 7.57 -10.3
US$ per silver
Saucito ounce 7.88 6.50 21.2
Ciénega US$ per gold ounce 1,198.16 419.16 185.8
San Julián US$ per silver
(phase I) ounce 4.89 5.65 -13.4
San Julián US$ per silver 9.50 - N/A
(phase II) ounce
Herradura US$ per gold ounce 715.92 810.82 -11.7
Noche Buena US$ per gold ounce 1,051.80 908.73 15.7
Consolidated
US$ per equiv.
gold ounce 827.46 754.98 9.6
US$ per equiv.
silver ounce 10.39 10.53 -1.3
-------------------------------------- --------- ------- ---------
All-in sustaining costs (AISC) are 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.
The changes in all-in sustaining costs at each mine are
explained below:
Fresnillo: All-in sustaining cost decreased due to lower cash
cost and lower sustaining capex. This was partially offset by
increased mine development.
Saucito: All-in sustaining cost increased due to increased mine
development, which was partly offset by lower cash cost.
Ciénega: The increase in all-in sustaining cost was mainly
driven by the increase in cash cost, higher sustaining capex and
increased mine development.
San Julián (phase I): AISC for 2017 is not considered
representative as it corresponds to the start-up period, when a
significant volume of ore from the stock pile is processed.
Herradura: All-in sustaining cost decreased mainly due to the
lower cash cost which was partially offset by the higher
capitalised stripping.
Noche Buena: The increase in all-in sustaining cost was due to a
higher sustaining capex.
All-in sustaining costs are affected by ad hoc expenses recorded
in each particular year, and therefore may significantly vary year
on year.
Gross profit
Total gross profit, excluding hedging gains and losses,
increased by 9.2% to US$502.2 million in 1H18. The US$42.1 million
increase resulted from: i) the gross profit of US$54.2 million from
the start-up of San Julián (phase II); ii) the increase in gold
inventories at Herradura estimated at US$46.0 million; iii) the
higher ore grade at Herradura, partially offset by lower ore grades
at Fresnillo, Ciénega, and Saucito with an estimated net impact of
US$36.3 million; and iv) the favourable effect of the higher gold,
zinc and lead prices of US$20.4 million. These factors were
partially offset by: i) the adverse effect of the lower volumes of
ore processed at Herradura and San Julián (phase I) mitigated by
the increase in ore throughput at Saucito and Ciénega with a net
effect estimated at US$32.6 million; ii) the higher stripping at
Herradura which had an estimated adverse impact of US$31.4 million;
iii) the higher depreciation of US$29.2 million; iv) the additional
costs registered due to the lower volume of development ore
processed at Saucito with an estimated impact of US$9.9 million; v)
cost inflation of US$7.7 million; and vi) the adverse impact of the
revaluation of the Mexican peso against the US dollar of US$4.0
million.
On a per mine basis, Herradura's contribution to the Group's
consolidated gross profit increased from 29.2% to 40.2% driven by
the higher ore grades and increase of inventories on the leaching
pads. Gross profit at Saucito, Fresnillo and Ciénega decreased half
on half, also affecting their contributions to the consolidated
gross profit. Gross profit at San Julián increased by 10% over
1H17, but its contribution remained unchanged at 9.4%. Noche
Buena's contribution to the Group's consolidated gross profit
increased from 5.8% in 1H17 to 7.1% in 1H18.
(US$ millions) Change
H1 18 % H1 17 % Amount %
------ ----- ------ ------- ------- -------
Herradura 201.4 40.2 133.1 29.2% 68.3 51.3%
------ ----- ------ ------- ------- -------
Saucito 99.2 19.8 120.5 26.4% -21.3 -17.7%
------ ----- ------ ------- ------- -------
Fresnillo 98.1 19.6 103.5 22.7% -5.4 -5.2%
------ ----- ------ ------- ------- -------
San Julián 47.5 9.5 43.0 9.4% 4.5 10.5%
------ ----- ------ ------- ------- -------
Ciénega 20.0 4.0 29.7 6.5% -9.7 -32.6%
------ ----- ------ ------- ------- -------
Noche Buena 34.7 6.9 26.6 5.8% 8.1 30.5%
------ ----- ------ ------- ------- -------
Total for operating
mines 500.9 100% 456.4 100.0% 44.5 9.8%
------ ----- ------ ------- ------- -------
MXP/USD exchange
rate hedging
(losses) 0.0 0.0 0.0 N/A
------ ----- ------ ------- ------- -------
Metal hedging 0.0 0.0 0.0 N/A
------ ----- ------ ------- ------- -------
Other subsidiaries 1.3 3.6 -2.3 -63.9
--------------------- ------ ----- ------ ------- ------- -------
Total Fresnillo
plc 502.2 460.0 42.2 9.2
------ ----- ------ ------- ------- -------
Administrative expenses
Administrative and corporate expenses increased US$5.4 million
(+16.1%) mainly due to an increase in the volume of services
provided by Servicios Industriales Peñoles, S.A.B de C.V. in
relation to new operations, mainly San Julián (phase II) , and an
increase in fees paid to advisors.
Exploration expenses
BUSINESS UNIT / PROJECT Exploration Capitalised
(US$ millions) expenses expenses
Ciénega 7.9 -
------------ ------------
Fresnillo 7.7 -
------------ ------------
Herradura 6.8 -
------------ ------------
Saucito 8.1 -
------------ ------------
Noche Buena 1.4 -
------------ ------------
San Julián 4.0 -
------------ ------------
Centauro Deep 3.0 0.3
------------ ------------
Orisyvo 2.1 -
------------ ------------
San Ramón 1.4 -
------------ ------------
San Juan 2.9
------------ ------------
Tajitos 1.3
------------ ------------
Corredor Herradura 0.4 -
------------ ------------
Pilarica 2.0 -
------------ ------------
Guazaparez 2.2 -
------------ ------------
Candameña 0.2 -
------------ ------------
Guanajuato 2.8 0.2
------------ ------------
Perú 0.5 -
------------ ------------
Juanicipio 0.0 2.3
------------ ------------
Others 23.6 0.2
------------ ------------
TOTAL 78.3 3.0
------------ ------------
Exploration expenses totalled US$78.3 million in 1H18, a 21.9%
increase over the same period of 2017 due to intensified
exploration activities aiming to convert resources into reserves
and direct mine development at our operations. An additional US$3.0
million was capitalised mainly related to exploration expenses at
the Juanicipio project. Thus, risk capital invested in exploration
totalled US$81.3 million and remains at US$180 million for the full
year.
EBITDA
EBITDA and EBITDA Margin
Six months ended 30 June
(in millions of US$)
H1 2018 H1 2017 % change
Gross Profit 502.2 460.0 9.2
-------- -------- ---------
+ Depreciation and amortisation 192.8 168.0 14.8
--------------------------------- -------- -------- ---------
- Administrative Expenses -38.4 -33.1 16.1
--------------------------------- -------- -------- ---------
- Exploration Expenses -78.3 -64.2 21.9
-------- -------- ---------
- Selling Expenses -11.4 -8.2 39.0
-------- -------- ---------
EBITDA 566.9 522.5 8.5
-------- -------- ---------
EBITDA Margin 50.8% 52.5%
--------------------------------- -------- -------- ---------
A key indicator of the Group's financial performance is EBITDA,
which is calculated as gross profit plus depreciation, less
administrative, selling and exploration expenses. This indicator
increased from US$522.5 million in 1H17 to US$566.9 million in 1H18
as a result of the higher gross profit, which was partly offset by
the higher administrative, exploration and selling expenses.
However, the EBITDA margin decreased slightly from 52.5% in 1H17 to
50.8% in 1H18.
Other loss
During the period, a US$2.3 million loss was recognised in the
income statement resulting from the maintenance and rehabilitation
costs at the Las Torres closed mine in Guanajuato. This compared
unfavourably to the US$23.4 million income recognised in 1H17 as a
result of the sale of non-strategic mining claims to Argonaut Gold
Inc. No concessions have been sold in 1H18.
Silverstream revaluation effects
The Silverstream contract is accounted for as a derivative
financial instrument carried at fair value. The total effect of the
revaluation of the Silverstream contract recorded in 1H18 was a
US$21.8 million loss, compared to the US$54.8 million gain
registered in 1H17. This loss was driven by an increase in the
reference discount rate (LIBOR) and to a lesser extent, a decrease
in silver resources at the Sabinas mine, and a lower forward price
of silver. These factors were mitigated by the unwinding of the
discount and the difference between payments received during the
1H18 and estimated payments in the valuation model at 31 December
2017.
The cumulative non-cash revaluation gains that have been
recognised in the income statement since 2008 increased to US$775.6
million in total; whilst cumulative cash received or receivable at
the end of 1H18 from the Silverstream contract totalled US$615.3
million (which compares favourably to the upfront payment of US$350
million paid on 31 December 2007).
It is expected that the Group will record further unrealised
gains or losses in the income statement in accordance with the
cyclical behaviour of the silver price or changes in the other
assumptions used when valuing this contract. Further information
related to the Silverstream contract is provided in the Balance
Sheet section below and in notes 10 and 18 to the Interim Financial
Statements.
Finance costs
Finance costs reflected the interest on the US$800 million
principal amount of 5.5% Senior Notes, net of interest received.
The finance cost of US$15.1 million in 1H18 compared unfavourably
with the US$13.9 million recorded in 1H17. This was the result of
higher interest on loans recognised this period as only US$5.2
million were capitalised in 1H18 compared to US$6.9 million
capitalised in 1H17.
In 1H18, following the adoption of IFRS 9, Financial
Instruments, the effects of the mark-to market time value of the
outstanding gold hedging programme are recognized in other
comprehensive income, rather than in income as in 1H'17 (see note
2c in the interim financial information). This caused a favourable
effect as a US$35.2 million loss was recognised in 1H17.
Foreign exchange
A foreign exchange loss of US$11.8 million was recorded in the
income statement as a result of the realised transactions in the
period and the marginal devaluation of the Mexican peso against the
US dollar in the six months ended 30 June 2018 on the value of
peso-denominated net monetary assets. This compared adversely
against the US$3.8 million foreign exchange gain recognised in the
first half of 2017.
The Group enters into certain exchange rate derivative
instruments as part of a programme to manage its exposure to
foreign exchange risk associated with the purchase of equipment
denominated in Euro (EUR), Swedish krona (SEK) and Canadian dollar
(CAD). At the end of June, the total EUR outstanding net forward
position was EUR 4.98 million with maturity dates from September
through December 2018. There was no outstanding position in CAD and
SEK. Volumes that expired during 1H18 were EUR 16.36 million with a
weighted average strike of 1.2114 USD/EUR, CAD 1.10 million with a
weighted average strike of 1.2847 CAD/USD and SEK 44.97 million
with a weighted average strike of 8.2766 SEK/USD, which has
generated an insignificant result in the period.
Taxation
Income tax expense increased by 33.3% from US$62.2 million in
1H17 to US$82.8 million in 1H18. The effective tax rate, excluding
the special mining rights, was 25.6%, which was below the 30%
statutory tax rate. This was mainly due to the tax credit related
to the special tax on diesel, together with the inflationary uplift
of the tax base of assets and liabilities.
The effective tax rate in 1H17 was lower (16.1% in 1H17 vs 25.6%
in 1H18) mainly because in 1H17 there was a 13.4% revaluation of
the Mexican peso which had an important impact on the tax value of
assets and liabilities that are denominated in Mexican pesos;
together with a higher inflation rate which impacted the
inflationary uplift of the tax base of assets and liabilities.
Profit for the period
Profit for the period was US$229.3 million, which represented a
26.1% decrease half on half as a result of the factors discussed
above.
Excluding the effects of the Silverstream valuation, profit for
the period decreased 10.0% to US$244.6 million in 1H18.
Cash Flow
A summary of the key items from the cash flow is set out
below:
Cash Flow Key Items
Six months ended 30 June
(in millions of US$)
H1 18 H1 17 (US $) (%)
Cash generated by operations
before changes in working
capital 575.9 540.3 35.6 6.6
------- ------- ------- ------
(Increase) decrease in
working capital 63.9 -25.8 89.7 N/A
------- ------- ------- ------
Taxes and Employee Profit
Sharing paid -145.3 -211.9 66.6 -31.4
------- ------- ------- ------
Net cash from operating
activities 366.6 354.2 12.5 3.5
------- ------- ------- ------
Silverstream contract 22.3 23.0 -0.7 -3.1
------- ------- ------- ------
Purchase of property,
plant & equipment -352.2 -264.3 -87.8 33.3
------- ------- ------- ------
Dividends paid -219.4 -158.4 -60.9 38.5
------- ------- ------- ------
Net interest paid -9.7 -8.5 -1.2 14.1
------- ------- ------- ------
Net increase in cash and
short term investments
during the period -187.5 -27.1 -160.4 593.1
------- ------- ------- ------
Cash, cash equivalents
and short term investments
at 30 June* 708.6 884.9 176.4 -19.9
------- ------- ------- ------
*As disclosed in the Consolidated Cash Flow Statement, cash and
cash equivalents at 30 June 2018 totalled US$688.6 million and debt
instruments amounted to US$20.1 million. Cash and cash equivalents
at 30 June 2017 totalled US$876.0 million and available-for-sale
financial instruments held in funds amounted to US$19.9
million.
In 1H18, cash generated by operations before changes in working
capital totalled US$575.9 million, a 6.6% increase due to higher
profits generated from the Groups operating mines. Working capital
increased by US$63.9 million as a result of the net impact of the
following factors:
-- A US$17.7 million increase in accounts receivables (mainly Value Added Tax to be recovered)
-- An increase in prepayments of US$19.8 million
-- A US$23.7 million increase in ore inventories primarily on the leaching pads at Herradura
-- A US$2.6 million decrease in accounts payable
Taxes and employee profit sharing paid of US$145.3 million
decreased by 31.4% over 1H17.
As a result of the above factors, net cash from operating
activities increased by 3.5% to US$366.6 million.
The Group also received proceeds of US$22.3 million from the
Silverstream Contract.
The Group purchased property plant and equipment for a total of
US$352.2 million, a 33.3% increase over 1H17. The Group expects
capital expenditures of around US$755 million for the full year.
Capital expenditures for 1H18 are further described below:
Purchase of property, plant and equipment*
(US$ millions)
H1 18
------------------- ------ --------------------------------------
Herradura mine 89.9 Construction of second line
of the dynamic leaching plant
and leaching pads; and stripping
activities
------ --------------------------------------
Saucito mine 71.0 Construction of the pyrites
plant, development works, deepening
of the Jarillas shaft and purchase
of in-mine equipment
------ --------------------------------------
Fresnillo mine 56.0 Mine development and purchase
of in-mine equipment
------ --------------------------------------
Ciénega mine 34.4 Development works, construction
of tailings dam and purchase
of in-mine equipment
------ --------------------------------------
Noche Buena 20.1 Sustaining capex
------ --------------------------------------
San Julián 40.8 Purchase of in-mine equipment,
construction of tailings dam
and mine development
------ --------------------------------------
Other 40.0 Minera Bermejal and Minera Juanicipio
------ --------------------------------------
Total Purchase of
property, plant
and equip. 352.2
------ --------------------------------------
Dividends paid to shareholders in 1H18 totalled US$219.4 million
as a result of the final dividend of 29.8 US cents per share paid
in May 2018. Other uses of funds included the US$9.7 million net
interest paid in 1H18.
The sources and uses of funds described above resulted in a net
decrease of US$187.5 million in cash and other liquid assets, which
combined with the US$896.0 million balance at the beginning of the
year, resulted in cash and other liquid assets of US$708.6 million
as at 30 June 2018.
Balance Sheet
Fresnillo plc continued to maintain a solid financial position
with cash and other liquid assets of US$708.6 million as of 30 June
2018. This represented a 20.9% decrease versus December 2017 and a
19.9% decrease compared to the short term funds of US$884.9 million
as of 30 June 2017.
Trade and other receivables (including income tax recoverable)
increased from US$402.1 million as of 31 December 2017 to US$430.8
million as at 30 June 2018 mainly due to the increase in
recoverable taxes in 1H18.
Inventories rose 8.7% over the 2017 year-end figure to US$294.8
million, mainly as a result of the increase in gold inventories on
the leaching pads of Herradura.
The change in the value of the Silverstream derivative from
US$538.9 million at the beginning of the year to US$495.2 million
as of 30 June 2018 reflects a loss of US$43.7 million, US$17.4
million in cash generated in respect of the period and US$4.5
million receivable and the revaluation effects of US$21.8 million
loss in the Group's income statement.
The net book value of property, plant and equipment increased by
6.0% to US$2,595.4 million at 30 June 2018 (US$2,448.6 at 31
December 2017), reflecting the larger asset base following the
commissioning of the pyrites plant.
Fresnillo plc's total equity for 1H18 was US$3,091.8 million, an
increase of 0.8% when compared to the figure at the beginning of
the year, which reflected retained earnings from 2017.
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 2017. 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 2017. Details of its financial instruments and
hedging activities as at 30 June 2018 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 31
December 2019 as at July 2018. In addition, they reviewed a more
conservative cash flow scenario with silver and gold prices
significantly reduced below current expectations, whilst
maintaining current budgeted expenditure, which resulted in our
current cash balances reducing over time to a more than adequate
margin of liquidity towards the end of 2019.
After reviewing all of the above considerations, the Directors
have a reasonable expectation that management has sufficient
flexibility in potential 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 these interim financial
statements.
Dividends
The Board of Directors has declared an interim dividend of 10.7
US cents per share totalling US$78.8 million which will be paid on
7 September 2018 to shareholders on the register on 10 August 2018.
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.
Fresnillo's existing dividend policy, which takes into account
the profitability of the business and underlying earnings of the
Group, as well as its capital requirements and cash flows whilst
maintaining an appropriate level of dividend cover, remains in
place. To reiterate the policy, a total dividend of between 33 and
50 percent of profit after tax is paid out each year in the
approximate proportion of one-third to be paid as an interim
dividend, two-thirds to be paid as a final dividend.
The interim dividend will be paid in UK pounds sterling to
shareholders, unless a shareholder elects to receive dividends in
US dollars. The interim dividend will be paid in UK pounds sterling
with the dividend being converted into UK pounds sterling on or
around 13 August 2018.
Risks and uncertainties
In the first half of 2018, the Board and the Executive Committee
continued to oversee Fresnillo plc's principal risks as part of our
risk management framework as we work towards achieving our
strategic objectives.
Fresnillo plc currently monitors twelve principal risks which
have not changed from those set out in the Strategic Report of the
Annual Report for the year ended 31 December 2017 (published in
April 2018).
The principal risks are shown below:
-- Impact of metal prices and global macroeconomic developments (silver and gold prices)
-- Access to land
-- Potential actions by the Government (e.g. taxes, more
stringent regulations, permits, resulting from political
alternation)
-- Security
-- Public perception against mining
-- Safety
-- Projects (performance risk)
-- Union relations
-- Exploration
-- Cybersecurity
-- Human Resources
-- Environmental incidents
Directors
The names and functions of the current directors and senior
management team of Fresnillo plc are shown on the Group's website:
www.fresnilloplc.com
Statement of directors' responsibilities
The Directors of the Company hereby confirm that to the best of
their knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 as adopted by the European Union 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
(b) the interim management report includes a fair review of the
information required by 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 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
Introduction
We have been engaged by the Company to review the interim
condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2018 which comprises the
interim consolidated income statement, the interim consolidated
statement of comprehensive income, the interim consolidated balance
sheet, the interim consolidated cash flow statement, the interim
consolidated statement of changes in equity and the related Notes 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 interim condensed consolidated set of financial
statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
(UK and Ireland) 2410 "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.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 2a, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The interim condensed consolidated set of financial
statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34,
"Interim Financial Reporting", as adopted by the European
Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the interim condensed consolidated set of financial statements in
the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. 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 Ireland) 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.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the interim condensed consolidated set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2018 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Ernst & Young LLP
London
30 July 2018
Interim Consolidated Income Statement
Notes For the six months ended 30 June
2018 (Unaudited) 2017 (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 1,115,046 1,115,046 995,833 995,833
Cost of sales 5 (612,863) (612,863) (535,798) (535,798)
Gross profit 502,183 502,183 460,035 460,035
Administrative
expenses (38,408) (38,408) (33,076) (33,076)
Exploration
expenses (78,318) (78,318) (64,247) (64,247)
Selling expenses (11,381) (11,381) (8,189) (8,189)
Other operating
income 2,073 2,073 27,268 27,268
Other operating
expenses (4,415) (4,415) (3,910) (3,910)
Profit from
continuing
operations
before
net finance
costs
and income tax 371,734 371,734 377,881 377,881
Finance income 6 8,914 8,914 7,812 7,812
Finance costs 6 (24,019) (24,019) (56,978) (56,978)
Revaluation
effects
of Silverstream
contract 10 - (21,797) (21,797) - 54,834 54,834
Foreign exchange
(loss)/gain (11,834) (11,834) 3,843 3,843
Profit from
continuing
operations
before
income tax 344,795 (21,797) 322,998 332,558 54,834 387,392
Corporate income
tax 7 (89,367) 6,539 (82,828) (45,701) (16,451) (62,152)
Special mining
right 7 (10,878) (10,878) (15,131) (15,131)
Income tax
expense 7 (100,245) 6,539 (93,706) (60,832) (16,451) (77,283)
Profit for the
period
from continuing
operations 244,550 (15,258) 229,292 271,726 38,383 310,109
Attributable to:
Equity
shareholders
of the Company 245,259 (15,258) 230,001 270,335 38,383 308,718
Non-controlling
interests (709) (709) 1,391 1,391
244,550 (15,258) 229,292 271,726 38,383 310,109
Earnings per
share:
(US$)
Basic and diluted
earnings per
ordinary
share from
continuing
operations 8 - 0.312 - 0.419
Adjusted earnings
per share: (US$)
Adjusted basic
and
diluted earnings
per ordinary
share
from continuing
operations 8 0.333 - 0.367 -
Interim Consolidated Statement of Comprehensive Income
For the six months ended
30 June
2018 2017
(Unaudited) (Unaudited)
(in thousands of US
dollars)
Profit for the period 229,292 310,109
Other comprehensive income/(loss)
Items that may be reclassified subsequently
to profit or loss:
Gain on cost of hedge recycled to (9) -
income statement
Income tax effect 3 -
Changes in the fair value of cost 15,992 -
of hedges
Income tax effect (4,798) -
Net effect of cost of hedges 11,188 -
Changes in the fair value of available-for-sale
financial assets - 17,683
Income tax effect - (5,305)
Impairment of available-for-sale
financial assets - 36
Income tax effect - (11)
Net effect of available-for-sale
financial assets - 12,403
Foreign currency translation (112) 460
Net other comprehensive income that
may be reclassified subsequently
to profit or loss 11,076 12,863
Items that will not be reclassified
to profit or loss:
Loss on cash flow hedges - -
Income tax effect - -
Changes in the fair value of cash (89) -
flow hedges
Income tax effect 27 -
Net effect of cash flow hedges (62) -
Changes in the fair value of equity (9,867) -
investments at FVOCI
Income tax effect 8,663 -
Net effect of equity investments (1,204) -
at FVOCI
Net other comprehensive loss that (1,266) -
will not be reclassified to profit
or loss
Other comprehensive income, net of
tax 9,810 12,863
Total comprehensive income, net of
tax 239,102 322,972
Attributable to:
Equity shareholders of the Company 239,811 321,581
Non-controlling interests (709) 1,391
239,102 322,972
.
Interim Consolidated Balance Sheet
Notes
As of 30 June As of 31 December
2018 2017
(Unaudited) (Audited)
(in thousands of US
dollars)
ASSETS
Non-current assets
Property, plant and equipment 9 2,595,389 2,448,596
Other financial assets 2c,18 134,986 -
Available-for-sale financial assets 2c,18 - 144,856
Silverstream contract 10,18 467,058 506,569
Deferred tax asset 70,456 48,950
Inventories 11 91,620 91,620
Other receivables 12 63 129
Other assets 4,237 3,389
3,363,809 3,244,109
Current assets
Inventories 11 203,188 179,485
Trade and other receivables 2c,12 363,401 342,506
Income tax recoverable 67,424 59,588
Prepayments 22,535 3,543
Derivative financial instruments 18 606 382
Silverstream contract 10,18 28,181 32,318
Cash and cash equivalents 13 688,552 876,034
1,373,887 1,493,856
Total assets 4,737,696 4,737,965
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 (62) -
Cost of hedging reserve (2,188) -
Available-for-sale financial assets
reserve - 53,799
Fair value reserve of financial assets
at FVOCI 48,418 -
Foreign currency translation reserve (722) (610)
Retained earnings 1,990,668 1,962,708
3,031,567 3,011,350
Non-controlling interests 60,219 55,245
Total equity 3,091,786 3,066,595
Non-current liabilities
Interest-bearing loans 799,478 799,046
Derivative financial instruments 18 2,724 14,224
Provision for mine closure cost 188,490 184,775
Provision for pensions and other post-employment
benefit plans 9,967 9,217
Deferred tax liability 511,055 491,677
1,511,714 1,498,939
Current liabilities
Trade and other payables 117,987 134,949
Income tax payable 3,149 18,328
Derivative financial instruments 18 1,096 4,992
Employee profit sharing 11,964 14,162
134,196 172,431
Total liabilities 1,645,910 1,671,370
Total equity and liabilities 4,737,696 4,737,965
Interim Consolidated Statement of Cash Flows
Notes For the six months ended
30 June
2018 2017
(Unaudited) (Unaudited)
(in thousands of US
dollars)
Net cash from operating activities 17 366,630 354,161
Cash flows from investing activities
Purchase of property, plant and
equipment (352,174) (264,341)
Proceeds from the sale of property,
plant and equipment 78 13,078
Repayments of loans granted to contractors 493 402
Short-term investments - (290,000)
Silverstream contract 10 22,319 23,028
Interest received 8,907 7,801
Net cash used in investing activities (320,377) (510,032)
Cash flows from financing activities
Dividends paid to shareholders of
the Company (219,369) (158,433)
Capital contribution 5,683 10,457
Interest paid(1) (18,654) (16,267)
Net cash used in financing activities (232,340) (164,243)
Net decrease in cash and cash equivalents
during the period (186,087) (320,114)
Effect of exchange rate on cash
and cash equivalents (1,395) 3,063
Cash and cash equivalents at 1 January 13 876,034 711,954
Cash and cash equivalents at 30
June 13 688,552 394,903
(1) Total interest paid during the six months ended 30 June 2018
less amounts capitalised totalling US$5.2 million (30 June 2017:
US$6.9 million) which were included within the caption Purchase of
property, plant and equipment.
Interim Consolidated Statement of Changes in Equity
Fair
value
reserve Total
Available- of attributable
for-sale financial Foreign to
Cost of financial assets currency shareholders
Share Share Capital Hedging hedging assets at translation Retained of the Non-controlling Total
Notes capital premium reserve Reserve reserve reserve FVOCI reserve earnings Company interests equity
(in thousands of US dollars)
Balance at 1
January
2017
(Audited) 368,546 1,153,817 (526,910) - 47,608 (728) 1,637,888 2,680,221 36,147 2,716,368
Profit for the
period - - - - - - 308,718 308,718 1,391 310,109
Other
comprehensive
income, net of
tax - - - - 12,403 460 - 12,863 - 12,863
Total
comprehensive
income for
the period - - - - 12,403 460 308,718 321,581 1,391 322,972
Capital
contribution - - - - - - - - 10,457 10,457
Dividends paid 14 - - - - - - (158,432) (158,432) - (158,432)
Balance at 30
June
2017
(Unaudited) 368,546 1,153,817 (526,910) - 60,011 (268) 1,788,174 2,843,370 47,995 2,891,365
Balance at 1
January
2018 (Audited) 368,546 1,153,817 (526,910) - 53,799 (610) 1,962,708 3,011,350 55,245 3,066,595
Adjustments of
initial
application of
IFRS
9 2c - - - - (13,376) (53,799) 49,622 - 17,553 - - -
Profit for the
period - - - - - - 230,001 230,001 (709) 229,292
Other
comprehensive
income, net of
tax - - - (62) 11,188 - (1,204) (112) - 9,810 - 9,810
Total
comprehensive
income for
the period - - - (62) 11,188 - (1,204) (112) 230,001 239,811 (709) 239,102
Capital
contribution - - - - - - - - - - 5,683 5,683
Dividends paid 14 - - - - - - - - (219,594) (219,594) - (219,594)
Balance at 30
June
2018
(Unaudited) 368,546 1,153,817 (526,910) (62) (2,188) - 48,418 (722) 1,990,668 3,031,567 60,219 3,091,786
Notes to the Interim Condensed Consolidated Financial
Statements
1 Corporate Information
Fresnillo plc ("the Company") 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 2018 ("interim consolidated
financial statements") were authorised for issue by the Board of
Directors of Fresnillo plc on 30 July 2018.
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 2018 have been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the European
Union (EU). They do not include all the information required for
full annual financial statements for the Group, and therefore,
should be read in conjunction with the Group's annual consolidated
financial statements for the year ended 31 December 2017 as
published in the Annual Report 2017.
These interim consolidated financial statements do not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the full year is
based on the statutory accounts for the financial year ended 31
December 2017. A copy of the statutory accounts for that year,
which were prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU up to 31 December
2017, 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.
The interim consolidated financial statements have been prepared
on a historical cost basis, except for trade receivables,
derivative financial instruments, equity securities, investment in
funds 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.
(b) Basis of consolidation
The interim consolidated financial statements set out the
Group's financial position as of 30 June 2018 and 31 December 2017,
and its operations and cash flows for the six-month periods ended
30 June 2018 and 30 June 2017.
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 2017.
(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 2017, except for the following:
New standards and interpretations as adopted by the Group
Financial instruments
On January 1, 2018, the Company adopted IFRS 9, Financial
Instruments which replaced IAS 39, Financial Instruments:
Recognition and Measurement using the modified retrospective
approach.
IFRS 9 provides a revised model for classification and
measurement of financial instruments; a single, forward-looking
expected loss impairment model; and changes to hedge
accounting.
The classification and measurement model for financial assets in
IFRS 9 is based on the Group's business models for managing its
financial assets and whether the contractual cash flows represent
solely payments for principal and interest. Generally, equity
instruments are classified and measured as fair value through
profit or loss (FVPL). However, in respect of equity instruments
that the Group intends to hold for the foreseeable future, IFRS 9
permits the Group to irrevocably elect upon initial recognition or
transition to classify those assets as fair value through other
comprehensive income (FVOCI). Changes in the fair value of equity
instruments elected to be classified as FVOCI are not reclassified
to profit or loss in future periods. Most of the requirements in
IAS 39 for classification and measurement of financial liabilities
were carried forward in IFRS 9.
Long-term financial assets
The adoption of IFRS 9 resulted in certain changes to the
classification of financial assets previously classified as
available-for-sale financial assets (AFS). The Company designated
its investments in quoted equity investments as FVOCI and
classified investments in funds as FVPL:
1 January 31 December
2018 2017
(in thousands of
US dollars)
Available-for-sale financial assets - 144,856
Debt instruments at fair value through profit
or loss 19,877 -
Equity instruments at fair value through other
comprehensive income 124,979 -
144,856 144,856
Upon transition, the balance in the AFS reserve relating to
investments in funds was reclassified from accumulated other
comprehensive income (OCI) to retained earnings. In addition, the
amounts previously recognised in retained earnings related to
historical impairment of AFS that are now classified as FVOCI have
been reclassified to the FVOCI reserve.
Trade receivables
Under IFRS 9, embedded derivatives are no longer separated from
their host contracts. Instead, where embedded derivatives are
present, the entire host contract is classified as fair value
through profit or loss. For the Group, this change affects the
trade receivables that include provisional pricing adjustments.
Impairment
The adoption of the new "expected credit loss" impairment model
under IFRS 9, as opposed to an incurred credit loss model under IAS
39, had a negligible impact on the carrying amounts of the Group's
financial assets on the transition date given the Group transacts
exclusively with organizations with strong credit ratings, the
negligible historical level of counterparty default and the short
term period of exposure to credit risk.
Hedging
The new general hedge accounting requirements retain the three
types of hedge accounting mechanisms previously available under IAS
39. Under IFRS 9, however, greater flexibility has been introduced
to the types of transactions eligible for hedge accounting,
specifically broadening the types of instruments that qualify for
hedging instruments and the types of risk components of
non-financial items that are eligible for hedge accounting. In
addition, the effectiveness test has been replaced with the
principle of an "economic relationship" and retrospective
assessment of hedge effectiveness is no longer required. Enhanced
disclosure requirements about an entity's risk management
activities have also been introduced.
IFRS 9 changes the accounting requirements for the time value of
purchased options where only the intrinsic value of such options
has been designated as the hedging instrument. In such cases,
changes in the time value of options are initially recognised in
OCI as a cost of hedging. Where the hedged item is transaction
related, amounts initially recognised in OCI related to the change
in the time value of options are reclassified to profit or loss or
as a basis adjustment to non-financial assets or liabilities upon
maturity of the hedged item, or, in the case of a hedged item that
realises over time, the amounts initially recognised in OCI are
amortised to profit or loss on a systematic and rational basis over
the life of the hedged item. Under IAS 39, the change in time value
of options was recorded in the income statement. As at 1 January
2018, the adjustment to reflect the changes in accounting for the
time value of such options increased retained earnings and
decreased the hedging reserve by US$19.1 million (US$13.4 million
net of tax).
Revenue recognition
On January 1, 2018, the Group adopted IFRS 15, Revenue from
Contracts with Customers which supersedes IAS 18, Revenue. IFRS 15
establishes a single five-step model framework for determining the
nature, amount, timing and uncertainty of revenue and cash flows
arising from a contract with a customer. IFRS 15 requires entities
to recognize revenue when control of goods or services transfers to
the customer whereas the previous standard, IAS 18, required
entities to recognize revenue when the risks and rewards of the
goods or services transfer to the customer. The Company concluded
there is no change in the timing of revenue recognition of its
doré, precipitates and concentrate sales under IFRS 15 compared to
the previous standard as the point of transfer of risks and rewards
of goods and services and transfer of control occur at the same
time. Therefore, no adjustment was required to the Group's
financial statements.
Revenue associated with the sale of concentrates, precipitates
and doré bars is recognized when control of the asset sold is
transferred to the customer. Indicators of control transferring
include an unconditional obligation to pay, legal title, physical
possession, transfer of risk and rewards and customer acceptance.
This generally occurs when the goods are delivered to the
customer's smelter or refinery agreed with the buyer; at which
point the buyer controls the goods.
The Group's sales contracts, in general, provide for a
provisional payment based upon provisional assays and quoted metal
prices. Revenues are recorded under these contracts at the time
control passes to the buyer and measured at the fair value of the
consideration receivable based on forward market prices set on
specified quotational periods applied to the Group's best estimate
of contained metal quantities.
At each reporting date, provisionally priced metal is marked to
market based on the forward selling price for the quotational
period stipulated in the contract. The transaction price can be
measured reliably as an active and freely traded commodity market
such as the London Metals Exchange exists for silver, gold, zinc
and lead and the value of product sold by the Company is directly
linked to the form in which it is traded on that market. Variations
between the price recorded at the date when control is transferred
to the buyer and the actual final price set under the smelting
contracts are caused by changes in metal prices resulting in the
receivable being recorded at FVTPL.
Final settlement is based on quantities adjusted as required
following the inspection of the product by the customer as well as
applicable commodity prices. IFRS 15 requires that variable
consideration should only be recognized to the extent that it is
highly probable that a significant reversal in the amount of
cumulative revenue recognized will not occur. The Group concluded
that the adjustments relating to the final assay results for the
quantity and quality of concentrate sold are not significant and do
not constrain the recognition of revenue.
Refining and treatment charges under the sales contracts
continue to be deducted from revenue from sales of
concentrates.
Other Narrow Scope Amendments
The Company has adopted IFRIC 22 - Foreign Currency Transactions
and Advance Considerations, which did not have a material impact on
the Company's consolidated financial statements.
Impact of standards issued but not yet applied by the Group
IFRS 16 Leases
IFRS 16 introduces a single lessee accounting model and requires
a lessee to recognise assets and liabilities for all leases with a
term of more than 12 months, unless the underlying asset is of low
value. A lessee is required to recognise a right-of-use asset
representing its right to use the underlying leased asset and a
lease liability representing its obligation to make lease payments.
IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17. Accordingly, a lessor continues to classify
its leases as operating leases or finance leases, and to account
for those two types of leases differently. These amendments are
effective for annual periods beginning on or after 1 January 2019.
The Group has decided to adopt the standard when it becomes
effective.
IFRIC 23 Uncertainty over Income Tax treatments
This Interpretation clarifies how to apply the recognition and
measurement requirements in IAS 12 when there is uncertainty over
income tax treatments. The interpretation is to be applied to the
determination of taxable profit (tax loss), tax bases, unused tax
losses, unused tax credits and tax rates, when there is uncertainty
over income tax treatments. Application of tax law can be complex
and requires judgement to assess risk and estimate outcomes where
the amount of tax payable or recoverable is uncertain. The Group is
currently assessing whether any potential uncertain tax positions
exist under the requirements of the Interpretation. IFRIC 23 is
applicable for annual periods beginning on or after 1 January
2019.
The IASB and IFRS Interpretation committee have 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 ARA except as set out
below.
Estimate of recoverable ore on leaching pads
In the Group's open pit mines, certain mined ore is placed on
leaching pads where a solution is applied to the surface of the
heap to dissolve the gold and enable extraction. The determination
of the amount of recoverable gold requires estimation with
consideration of the quantities of ore placed on the pads and the
grade of that ore (based on assay data) and the estimated recovery
percentage (based on metallurgical studies and current
technology).
The grades of ore placed on pads are regularly compared to the
quantities of metal recovered through the leaching process to
evaluate the appropriateness of the estimated recovery
(metallurgical balancing). The Group monitors the results of the
metallurgical balancing process and recovery estimates are refined
based on actual results over time and when new information becomes
available.
In 2017, the Group decided that it will construct a new leaching
pad in a separate area of the Herradura mine. To reduce the hauling
distance from the pit to the new pad, the Group constructed an
access route through certain existing leaching pads, removing and
redepositing the ore in the process. These works allowed the Group
to perform assays and verify certain characteristics of the ore,
including the humidity of the ore deposited and the grade of gold
in solution. The testing of those assays commenced in 2018 and is
ongoing.
As a result of this new information, the Group updated its
estimate of the remaining gold content in leaching pads resulting
in an increase of 98.9 thousand ounces of gold as at 1 January
2018. This represents 1.7% of the total gold content deposited from
the inception of the mine to 31 December 2017.
This change in estimation was incorporated prospectively in
inventory from 1 January 2018. The increase in the number of ounces
reduced the weighted average cost of inventory. Had the estimation
not changed, production cost during the six-month period ended 30
June 2018 would have been US$46.0 million higher, with an
offsetting impact against the work-in-progress inventory balance as
of 30 June 2018.
3 Segment reporting
For management purposes, the Group is organised into operating
segments based on producing mines.
At 30 June 2018 the Group has seven reportable operating
segments represented by seven 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; including the San Ramon satellite mine;
- The Herradura mine, located in the State of Sonora, a surface
gold mine;
- The Soledad-Dipolos 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 2018 and 2017, substantially 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 2018 and 2017, respectively. Revenues for the six months
ended 30 June 2018 include those derived from contracts with
costumers and other revenues, as showed in note 4.
Six months ended 30 June 2018
--------------------------------------------------------------------------------------------------------------------------------------------
US$ thousands Fresnillo Herradura Cienega Soledad-Dipolos Saucito Noche San Other(5) Adjustments Total
(4) Buena Julian and
eliminations
---------------- ---------- ---------- -------- ---------------- -------- -------- -------- --------- ------------- ------------
Revenues:
Third party(1) 189,199 327,385 87,889 - 218,517 114,855 177,192 - 9 1,115,046
Inter-Segment - - - - - - - 41,370 (41,370) -
---------------- ---------- ---------- -------- ---------------- -------- -------- -------- --------- ------------- ------------
Segment
revenues 189,199 327,385 87,889 - 218,517 114,855 177,192 41,370 (41,361) 1,115,046
Segment
profit(2) 130,522 224,580 42,790 - 144,728 46,850 98,356 31,498 (12,523) 706,801
Depreciation
and
amortisation (192,840)
Employee
profit sharing (11,778)
---------------- ---------- ---------- -------- ---------------- -------- -------- -------- --------- ------------- ------------
Gross profit
as per the
income
statement 502,183
---------------- ---------- ---------- -------- ---------------- -------- -------- -------- --------- ------------- ------------
Capital
expenditure(3) 55,960 89,904 34,404 - 70,966 20,133 40,847 39,960 - 352,174
---------------- ---------- ---------- -------- ---------------- -------- -------- -------- --------- ------------- ------------
(1) Total third party revenues include treatment and refining
charges amounting US$74.8 million and hedging gains and losses in
respect of metal prices.
(2) Segment profit excluding foreign exchange hedging losses,
depreciation and amortisation and employee profit sharing.
(3) Capital expenditure represents the cash outflow in respect
of additions to property, plant and equipment.
(4) Operations at Soledad-Dipolos were suspended in 2H 2013 as a
result of the dispute disclosed in note 15.
(5) Other inter-segment revenue corresponds to leasing services
provided by Minera Bermejal, S.A. de C.V; capital expenditure
corresponds to Minera Juanicipio S.A de C.V.
Six months ended 30 June 2017
-----------------------------------------------------------------------------------------------------------------------------------------
US$ thousands Fresnillo Herradura Cienega Soledad-Dipolos Saucito Noche San Other(5) Adjustments Total
(4) Buena Julian and
eliminations
---------------- ---------- ---------- -------- ---------------- -------- -------- --------- --------- ------------- ----------
Revenues:
Third party(1) 188,610 281,274 92,912 - 221,165 110,811 101,061 - - 995,833
Inter-Segment - - - - - - - 39,953 (39,953) -
---------------- ---------- ---------- -------- ---------------- -------- -------- --------- --------- ------------- ----------
Segment
revenues 188,610 281,274 92,912 - 221,165 110,811 101,061 39,953 (39,953) 995,833
Segment
profit(2) 133,010 166,136 51,514 - 162,244 36,866 69,303 30,726 (12,882) 636,917
Depreciation
and
amortisation (167,959)
Employee
profit sharing (8,923)
---------------- ---------- ---------- -------- ---------------- -------- -------- --------- --------- ------------- ----------
Gross profit
as per the
income
statement 460,035
---------------- ---------- ---------- -------- ---------------- -------- -------- --------- --------- ------------- ----------
Capital
expenditure(3) 49,456 61,233 19,006 - 53,239 8,670 55,568 17,169 - 264,341
---------------- ---------- ---------- -------- ---------------- -------- -------- --------- --------- ------------- ----------
(1) Total third party revenues include treatment and refining
charges amounting US$73.6 million.
(2) Segment profit excluding foreign exchange hedging losses,
depreciation and amortisation and employee profit sharing.
(3) Capital expenditure represents the cash outflow in respect
of additions to property, plant and equipment.
(4) Operations at Soledad-Dipolos were suspended in 2H 2013 as a
result of the dispute disclosed in Note 15.
(5) 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
precipitates, doré and slag of which the primary contents are
silver, gold, lead and zinc.
(a) Revenues
Six months ended 30
June
2018 2017
(in thousands of US
dollars)
Revenues from contracts with customers 1,125,946 993,981
Revenues from other sources
Provisional pricing adjustment on products
sold (10,909) 1,852
Hedging gain on sales 9 -
1,115,046 995,833
(b) Revenues by product sold
Six months ended 30
June
2018 2017
(in thousands of US
dollars)
Lead concentrates (containing silver, gold,
lead and by-products) 426,307 405,714
Doré and slag (containing gold, silver
and by-products) 442,240 392,085
Zinc concentrates (containing zinc, silver
and by-products) 133,381 74,113
Precipitates (containing gold and silver) 113,118 123,921
1,115,046 995,833
Substantially all lead and zinc concentrates, precipitates, doré
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
2018 2017
(in thousands of US
dollars)
Silver 432,093 413,205
Gold 593,002 543,912
Zinc 109,245 65,559
Lead 55,542 46,790
Value of metal content in products sold 1,189,882 1,069,466
Adjustment for treatment and refining charges (74,836) (73,633)
Total revenues(1) 1,115,046 995,833
(1) Includes provisional price adjustments which represent
changes in the fair value of trade receivables resulting in a loss
of US$10.9 million (2017: gain of US$1.9 million due to changes in
the fair value of embedded derivatives arising on provisional
pricing in sales contracts) and hedging gain of US$0.01 million
(2017: nil).
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
2018 2017
(in US dollars per ounce)
Gold(2) 1,312.77 1,250.25
Silver(2) 16.48 17.44
(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
2018 2017
(in thousands of US
dollars)
Depreciation and amortisation (Note 9) 192,840 167,959
Personnel expenses(1) 50,146 41,571
Maintenance and repairs 65,479 51,351
Operating materials 86,877 69,101
Energy 75,458 66,996
Contractors 136,504 101,349
Mining concession rights and contributions 6,534 5,050
Freight 5,350 4,652
Insurance 2,543 2,285
Other 12,823 9,521
Cost of production 634,554 519,835
Change in work in progress and finished goods
(ore inventories)(2) (21,691) 15,963
Cost of sales 612,863 535,798
(1) Personnel expenses include employees' profit sharing of
US$11.8 million for the six months ended 30 June 2018 (six months
ended 30 June 2017: US$8.9 million).
(2) Refer to note 2c for more detail related to change in work
in progress inventories for the six-month period ended 30 June 2018
following a change in estimation..
6 Finance income and finance costs
Six months ended 30
June
2018 2017
(in thousands of US
dollars)
Finance income:
Interest on short term deposits 7,956 5,569
Other 958 2,243
8,914 7,812
Finance costs:
Interest on short term deposits 41 -
Interest on interest-bearing loans 18,334 16,669
Unwinding of discount on provisions 5,026 5,451
Fair value movements on derivatives(1) 274 34,508
Other 344 350
24,019 56,978
(1) The fair value movements on derivatives during the six
months ended 30 June 2017 included changes to the time value of
gold commodity options. From 1 January 2018, the time value is
recognised in equity as a cost of hedging, see note 2c.
7 Income tax expense
Six months ended 30
June
2018 2017
(in thousands of US
dollars)
Current corporate income tax:
Income tax charge(1) 93,756 62,095
Amounts (over)/under provided in previous periods (4,728) 8,676
89,028 70,771
Deferred corporate income tax:
Origination and reversal of temporary differences 339 (25,070)
Revaluation effects of Silverstream contract (6,539) 16,451
(6,200) (8,619)
Corporate income tax 82,828 62,152
Current special mining right:
Special mining right charge(2) 2,917 10,287
2,917 10,287
Deferred special mining right:
Origination and reversal of temporary differences 7,961 4,844
Special mining right 10,878 15,131
Income tax expense as reported in the income
statement 93,706 77,283
(1) During 2016 the Mexican Internal Revenue Law granted to
taxpayers a credit in respect of an excise tax (Special Tax on
Production and Services, or IEPS for its acronym in Spanish) paid
when purchasing diesel used for general machinery and certain
mining vehicles. The credit can be applied against either the
Group's own corporate income tax or the income tax withheld from
third parties. The credit is calculated on an entity-by-entity
basis and expires one year after the purchase of the diesel. During
the six months period ended 30 June 2018 the Group applied a credit
of US$16.9 million in respect of the period (30 June 2017: US$15.3
million).
(2) 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 2018, the Group credited US$8.9 million (2017: US$7.6
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
US$11.8 million (2017: US$17.9).
The total mining concession rights paid during the six month
period were US$9.9 million (2017: US$7.3 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.
The effective tax rate for corporate income tax for the six
months ended 30 June 2018 is 25.64% (six months ended 30 June 2017:
16.04%) and 29.01% including the special mining right (six months
ended 30 June 2017: 20.57%). The main factors that reduced the
effective tax rate for corporate income tax below 30% are the IEPS
tax incentive described above and the effect of uplift of tax value
of assets.
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.
As of 30 June 2018 and 30 June 2017, earnings per share have
been calculated as follows:
Six months ended 30
June
2018 2017
(in thousands of US
dollars)
Earnings:
Profit from continuing operations attributable
to equity holders of the Company 230,001 308,718
Adjusted profit from continuing operations
attributable to equity holders of the Company 245,259 270,335
Adjusted profit is profit as disclosed in the Interim
Consolidated Income Statement adjusted to exclude revaluation
effects of the Silverstream contract of US$21.8 million loss
(US$15.2 million net of tax) (2017: US$54.8 million gain and
US$38.3 million net of tax).
Adjusted earnings per share have been provided in order to
provide a measure of the underlying performance of the Group, prior
to the revaluation effects of the Silverstream contract, a
derivative financial instrument.
Six months ended 30
June
2018 2017
Number of shares:
Weighted average number of ordinary shares
in issue ('000) 736,894 736,894
Six months ended 30
June
2018 2017
Earnings per share:
Basic and diluted earnings per ordinary share 0.312 0.419
from continuing operations (US$)
Adjusted basic and diluted earnings per ordinary 0.333 0.367
share from continuing operations (US$)
9 Property, plant and equipment
The changes in property, plant and equipment during the six
months ended 30 June 2018 are additions of US$346.4 million (six
months ended 30 June 2017: US$288.4million) and depreciation and
amortisation of US$199.5 million, of which US$6.7 million was
capitalised as a part of the cost of other fixed assets (six months
ended 30 June 2017: US$176.4million, of which US$8.4 million was
capitalised). Significant additions include mine development,
construction of leaching pads, purchase of mine equipment and
capitalised stripping activity as well as projects such as:
construction of facilities at San Julian phase II, the second
dynamic leaching plant at Herradura and the construction of the
pyrites plant in the Fresnillo district.
As of 30 June 2018 the Group has contractual commitments related
to the construction and acquisition of property, plant and
equipment of US$262.0 million (31 December 2017: US$207.5
million).
10 Silverstream contract
Cash received in respect of the period of US$17.4 million (six
months ended 30 June 2017: US$17.1 million) corresponds to 2
million ounces of payable silver (six months ended 30 June 2017:
1.9 million ounces). As at 30 June 2018, a further US$4.4 million
(30 June 2017: US$5.1 million) of cash corresponding to 413,793
ounces of silver is due (30 June 2017: 456,814 ounces).
A reconciliation of the beginning balance to the ending balance
is shown below.
2018 2017
(in thousands of US
dollars)
Balance at 1 January: 538,887 467,529
Cash received in respect of the period (17,395) (17,054)
Cash receivable (4,456) (5,146)
Remeasurement (loss)/gain recognised in profit
or loss (21,797) 54,834
Balance at 30 June 495,239 500,163
Less - Current portion 28,181 31,387
Non-current portion 467,058 468,776
The US$21.8 million unrealised loss recorded in the income
statement (30 June 2017: US$54.8 million gain) resulted from the
updating of assumptions used to value the Silverstream contract.
The most significant of these were the increase in the LIBOR
reference rate used to determine the discount rate, the Sabinas
mine silver reserves and resources estimation update and the
decrease in the forward silver price.
11 Inventories
As at 30 As at 31
June December
2018 2017
(in thousands of US
dollars)
Finished goods(1) 11,564 10,957
Work in progress(2) 202,804 175,016
Ore stockpiles(3) 9,165 15,115
Operating materials and spare parts 76,530 75,331
Inventories at lower of cost and net realisable
value 300,063 276,419
Allowance for obsolete and slow-moving inventories (5,255) (5,314)
Balance at lower of cost and net realisable
value 294,808 271,105
Less - Current portion 203,188 179,485
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 note 2c for more detail related work in
progress inventories as of 30 June 2018 following a change in
estimation.
(3) Ore stockpile includes ore mineral obtained during the
development phase at San Julián.
(4) The non-current inventories are expected to be processed
more than 12 months from the reporting date.
12 Trade and other receivables
As at 31
As at 30 June December
2018 2017
(in thousands of US dollars)
Trade receivables from related parties (Note
16)(1) 209,772 226,134
Value added tax receivable 138,143 85,979
Other receivables from related parties (Note
16) 4,621 4,925
Other receivable from contractors 3,025 19,832
Other receivables 8,488 6,072
364,049 342,942
Provision for impairment of other receivables (648) (436)
363,401 342,506
Other receivables classified as non-current
assets:
Loans granted to contractors 63 129
63 129
363,464 342,635
(1) As of 30 June 2018 trade receivables from related parties
were valued at fair value based on forward market prices following
the adoption of IFRS 9. At 31 December 2017 receivables from
related parties included the fair value of embedded derivatives
arising due to provisional pricing in sales contracts of US$6.5
million..
13 Cash and cash equivalents
The Group considers cash and cash equivalents and short term
investments when planning its operations and in order to achieve
its treasury objectives.
As at 31
As at 30 June December
2018 2017
(in thousands of US dollars)
Cash at bank and on hand 7,002 4,265
Short-term deposits 681,550 871,769
Cash and cash equivalents 688,552 876,034
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 four 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 2018
Total dividends paid during the period(1) 29.8 219.6
Six months ended 30 June 2017
Total dividends paid during the period(2) 21.5 158.4
------------------------------------------- ---------- ----------
(1) Final dividend for 2017 approved at the Annual General
Meeting on 30 May 2018 and paid on 4 Jun 2018.
(2) Final dividend for 2016 approved at the Annual General
Meeting on 23 May 2017 and paid on 26 May 2017.
15 Contingencies
The contingencies in the Group's annual consolidated financial
statements for the year ended 31 December 2017 as published in the
2017 Annual Report, are still applicable as of 30 June 2018,
including the El Bajio agrarian community conflict and Minera
Penmont tax audit as described below:
- As previously reported by the Company, the Unitarian Agrarian
Court in Hermosillo, Sonora issued in February 2014 a procedural
order determining, amongst other aspects, that Minera Penmont
("Penmont") must remediate the lands subject of the litigation to
the state they were in before Penmont's occupation.
- In the opinion of the Company, this procedural order was
excessive since this level of remediation was not part of the
original agrarian ruling and also because the procedural order
appeared not to consider the fact that Penmont conducted its
activities pursuant to valid mining concessions and environmental
impact permits. In December 2016, the Agrarian Court issued a
subsequent procedural order in which the Court recognised that
Penmont complied with the agrarian ruling by having returned the
land in dispute and, furthermore, that remediation activities are
to be conducted in accordance with Federal environmental guidelines
and regulations, as supervised by the competent Federal
authorities. Remediation activities in this respect are pending as
the agrarian members have not yet permitted Penmont physical access
to the lands. Penmont has already presented a conceptual mine
closure and remediation plan before the Agrarian Court in respect
of the approximately 300 hectares where Penmont conducted mining
activities. The agrarian community ejido El Bajio appealed this
procedural order from the Agrarian Court and a Federal District
Court denied this appeal. In August 2017 the agrarian community
presented a further and last recourse against this ruling by the
Federal District Court in relation to which there have been certain
procedural developments; however, the final resolution continues to
be pending.
- In addition, and as also previously reported by the Company,
claimants in the El Bajio matter presented other claims against
occupation agreements they entered into with Penmont, covering land
parcels separate from the land described above. Penmont has no
significant mining operations or specific geological interest in
the affected parcels and these lands are therefore not considered
strategic for Penmont. As previously reported, the Agrarian Court
issued rulings declaring such occupation agreements over those land
parcels to be null and void and that Penmont must remediate such
lands to the state that they were in before Penmont's occupation as
well as returning any minerals extracted from this area. Given that
Penmont has not conducted significant mining operations or has had
specific geological interest in these land parcels, any
contingencies relating to such land parcels are not considered
material by the Company. The case relating to the claims over these
land parcels remains subject to final conclusion.
- Various claims and counterclaims have been made between the
relevant parties in the El Bajio matter. There remains significant
uncertainty as to the finalisation and ultimate outcome of these
legal proceedings.
- With regards to tax audits:
- In May 2018 the Company was notified of tax assessments in
respect of the Penmont tax audits for tax years 2012 and 2013. The
tax authorities (SAT) determined additional income tax and value
added tax of $2.5 million and $0.4million, and an additional profit
sharing (PTU) to the Company's employees of $0.3 million and
$0.1million for 2012 and 2013 respectively. On 11 July 2018 Penmont
filed Substance Administrative Appeals against these tax
assessments with the tax authorities, which, according to the
Federal Tax Code, should be resolved within a period of 3 months.
This term may however be extended depending on the authorities'
workload. Management continues to be confident in its
interpretation of the relevant legislation.
- During 2018 the tax authorities commenced tax inspections for
the 2014 tax year in respect of Minera Fresnillo, Minera Mexicana
La Ciénega, Desarrollos Mineros El Aguila and Desarrollos Mineros
Canelas (the Companies). In June 2018 the SAT provided its Audit
Report, which challenges certain tax deductions taken by the
Companies for Income Tax and Mining Rights purposes. On 11 July
2018, the Companies responded to the SAT's Audit Report and
formally filed a writ before the Mexican Taxpayers Ombudsman
(PRODECON per its Spanish acronym) requesting a conclusive
agreement in the matter. The current audit process is suspended for
the duration of the conclusive agreement proceedings, and the tax
authorities cannot determine a tax deficiency until PRODECON issues
the final agreement under the terms agreed between the Companies
and the SAT. 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.
- There are currently a number of other ongoing tax inspections
that have been initiated by the SAT in respect of which no findings
or claims have been communicated to the Company. It is not
practical to determine the amount of any potential claims or the
likelihood of any unfavourable outcome arising from these 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.
- New income tax and VAT legislation in respect of contractors
came into effect on 1 January 2017, requiring management to ensure
that contractors are compliant with their own tax obligations,
including employment tax. This created a new obligation for
Fresnillo to obtain and retain sufficient evidence of contractors'
fiscal compliance in order to deduct costs related to the
contractors for income tax purposes and to recover input VAT. In
late 2017, the 2018 Federal Revenue Law clarified that if the
online portal (established by the tax authorities to facilitate
compliance) is used in 2018, it would be sufficient to discharge
any 2017 compliance obligations. Management considers that it is
well progressed in meeting its obligations for 2017 and 2018, and
does not consider that any significant economic exposure will arise
as a result of this new legislation with respect to the current
year.
- In 2011, flooding occurred in the Saucito mine, following
which the Group filed an insurance claim in respect of the damage
caused (and in respect of business continuity). In early 2018, the
insurance provider notified the Group that the claim had been
accepted; however, there is disagreement about the appropriate
amount to be paid. Due to the fact that negotiations are on-going
and there is uncertainty regarding the timing of reaching an
agreement with the insurer, the amount expected to be recovered is
currently not practicable to determine.
16 Related party balances and transactions
The Group had the following related party transactions during
the six months ended 30 June 2018 and 30 June 2017 and balances as
at 30 June 2018 and 31 December 2017.
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 2018 31 December 30 June December
2017 2018 2017
(in thousands of US dollars)
Trade:
Metalúrgica Met-Mex Peñoles,
S.A. de C.V. 209,772 225,741 210 397
Other:
Industrias Peñoles, S.A.B.
de C.V. 4,456 4,925 - -
Servicios Administrativos Peñoles,
S.A de C.V. - - 3,427 2,434
Servicios Especializados Peñoles,
S.A. de C.V. - - 617 1,786
Termoeléctrica Peñoles,
S. de R.L. de C.V. - - 530 1,650
Fuentes de Energía Peñoles, - - 554 -
S.A. de C.V.
Eólica de Coahuila S.A.
de C.V. - - 2,816 1,926
Other 165 392 1,946 864
214,393 231,058 10,100 9,057
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
2018 2017
(in thousands of US dollars)
Silverstream contract:
Industrias Peñoles, S.A.B. de C.V. 495,239 538,887
The Silverstream contract can be settled in either silver or
cash. Details of the Silverstream contract are provided in note
11.
(b) Principal transactions with affiliates are as follows:
Six months ended 30
June
2018 2017
(in thousands of US
dollars)
Income:
Sales(1) :
Metalúrgica Met-Mex Peñoles, S.A.
de C.V. 1,119,766 995,833
Other income 2,151 1,170
Total income 1,121,917 997,003
(1) Figures do not include hedging results as the derivative
transactions are not undertaken with related parties. Figures are
net of treatment and refining charges of US$74.8 million (June
2017: US$73.6 million) and include sales credited to development
projects of US$ 4.7 million (June 2017: nil)
Six months ended 30 June
2018 2017(3)
(in thousands of US dollars)
Expenses:
Administrative Services:
Servicios Administrativos Peñoles,
S.A. de C.V.(2) 14,105 13,723
Servicios Especializados Peñoles, S.A.
de C.V. (2) 7,192 8,855
21,297 22,578
Energy:
Fuerza Eólica del Istmo, S.A. de C.V. 2,187 1,615
Fuentes de Energía Peñoles, S.A.
de C.V. 1,155 -
Termoeléctrica Peñoles, S. de
R.L. de C.V. 9,474 9,996
Eólica de Coahuila, S.A. de C.V. 12,655 -
25,471 11,611
Operating materials and spare parts:
Wideco Inc 2,059 2,452
Metalúrgica Met-Mex Peñoles, S.A.
de C.V. 3,678 2,814
5,737 5,266
Equipment repairs and administrative services:
Serviminas, S.A. de C.V. 4,366 4,097
Insurance premiums:
Grupo Nacional Provincial, S.A.B. de C.V. 1,070 1,021
Other expenses 874 803
Total expenses 58,815 45,376
(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 2018 for a total
amount of US$21.3 million (US$20.4 million for the six months ended
30 June 2017). Of the total amount of these services, US$19.0
million (US$16.0 million for the six months ended 30 June 2017)
were recognised in administrative expenses and US$2.3 million
(US$4.4 million for six months ended 30 June 2017) were
capitalised.
(3) The presentation of figures for the six-month period ended
30 June 2017 has been amended to be consistent with the
presentation for the six-month period ended 30 June 2018.
(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
2018 2017
(in thousands of US dollars)
Salaries and bonuses 2,005 2,239
Post-employment pension 150 137
Other benefits 115 136
Total compensation paid to key management
personnel 2,270 2,512
17 Notes to the consolidated statement cash flows
Notes Six months ended 30 June
2018 2017
(in thousands of US dollars)
Reconciliation of profit for the
period to net cash generated from
operating activities
Profit for the period 229,292 310,109
Adjustments to reconcile profit
for the period to net cash inflows
from operating activities:
Depreciation and amortisation 5,9 192,840 167,959
Employee profit sharing 12,093 9,137
Deferred income tax expense 7 1,761 3,992
Current income tax expense 7 91,945 73,291
Loss/(gain) on the sale of property,
plant and equipment 51 (24,686)
Other losses 3 31
Net finance costs 14,797 14,658
Foreign exchange loss 10,503 5,700
Difference between pension contributions
paid and amounts recognised in
the income statement 500 457
Non cash movement on derivatives 6 274 34,508
Changes in fair value of Silverstream 10 21,797 (54,834)
Working capital adjustments
(Increase)/decrease in trade and
other receivables (17,724) 6,002
(Increase)/decrease in prepayments
and other assets (19,842) 712
(Increase)/decrease in inventories (23,703) 14,129
(Decrease)/increase in trade and
other payables (2,634) 4,943
Cash generated from operations 511,953 566,108
Income tax paid(1) (130,974) (194,763)
Employee profit sharing paid (14,349) (17,184)
Net cash from operating activities 366,630 354,161
(1) Income tax paid includes US$111.2 million corresponding to
corporate income tax (June 2017: US$170.3 million) and US$19.7
corresponding to special mining right (June 2017: US$24.5
million).
18 Financial instruments
a. Classification
As at 30 June 2018
US$ 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) 3,364 - - 214,228
Other financial assets - 114,932 - 20,054
Silverstream contract (Note
10) - - - 495,239
Derivative financial instruments - - 606 -
----------------------------------- ---------- ----------- -------------- -----------
Financial liabilities: Amortised Fair value Fair value
Cost (hedging through
instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Interest-bearing loans 799,478 - -
Trade and other payables 77,465 - -
Derivative financial instruments - 3,820 -
----------------------------------- ---------- ----------- -------------- -----------
As at 31 December 2017
US$ thousands
------------------------------------------------------------------------------------
Financial assets: Fair value Available-for-sale Loans Fair value
through investments and through
profit at fair receivables OCI (cash
or loss value through flow hedges)
OCI
----------------------------------- ----------- ------------------- ------------- --------------
Trade and other receivables(1) - - 236,859 -
(Note 12)
Available-for-sale financial - 144,856 - -
assets
Silverstream contract (Note 538,887 - - -
10)
Embedded derivatives within
sales contracts 6,511 - - -
Derivative financial instruments 311 - - 71
----------------------------------- ----------- ------------------- ------------- --------------
Financial liabilities: Fair value Amortised Fair value
through Cost through
profit or OCI (cash
loss flow hedges)
----------------------------------- ----------- ------------------- ------------- --------------
Interest-bearing loans - 799,046 -
Trade and other payables - 102,721 -
Derivative financial instruments 37 - 19,179
----------------------------------- ----------- ------------------- ------------- --------------
(1) Embedded derivatives from sales contracts are presented net
within Trade and other receivables in the balance sheet.
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 fair value of financial assets and liabilities, together
with the carrying amounts shown in the balance sheet, other than
those with carrying amounts that are a reasonable approximation of
their fair values, are as follows:
Carrying amount Fair value
--------------------------- ------------------------------ ---------------------------
30 June 31 December 30 June 31 December
2018 2017 2018 2017
US$ thousands
--------------------------- ---------------------------------------------------------
Financial liabilities:
Interest-bearing loans(1) 799,478 799,046 826,840 878,864
--------------------------- ---------------- ------------ ----------- ------------
(1) The fair value of interest-bearing loans is derived from
quoted market prices in active markets (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 2018
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 - - 214,228 214,228
Derivative financial instruments:
Option commodity contracts - 582 - 582
Option and forward foreign
exchange contracts - 24 - 24
Silverstream contract (Note
10) - - 495,239 495,239
Other financial assets:
Equity investments 114,932 - - 114,932
Debt instruments 20,054 - - 20,054
----------------------------------- -------------- ------------ -------------- --------
134,986 606 709,467 845,059
----------------------------------- -------------- ------------ -------------- --------
Financial liabilities:
Derivative financial instruments:
Option commodity contracts - 3,708 - 3,708
Option and forward foreign
exchange contracts - 112 - 112
- 3,820 - 3,820
----------------------------------- -------------- ------------ -------------- --------
As of 31 December 2017(1)
Fair value measure using
----------------------------------------------------------------------------------------------
Quoted prices Significant Significant Total
in active observable unobservable
markets (Level 2) (Level 3)
(Level 1)
US$ thousands
-------------------------------------- ------------------------------------------------------
Financial assets:
Derivative financial instruments:
Embedded derivatives within
sales contracts 6,511 6,511
Option commodity contracts - 71 - 71
Option and forward foreign
exchange contracts - 311 - 311
Silverstream contract (Note
10) - - 538,887 538,887
Financial assets available-for-sale:
Quoted investments 144,856 - - 144,856
-------------------------------------- -------------- ------------ -------------- --------
144,856 382 545,398 690,636
-------------------------------------- -------------- ------------ -------------- --------
Financial liabilities:
Derivative financial instruments:
Options commodity contracts - 19,179 - 19,179
Option and forward foreign
exchange contracts - 37 - 37
-------------------------------------- -------------- ------------ -------------- --------
- 19,216 19,216
-------------------------------------- -------------- ------------ -------------- --------
(1) (Financial assets and liabilities are classified in this note
in line with IAS 39.)
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 (which is
disclosed in Note 10) is shown below:
2018 2017
US$ thousands
------------------------------------------------ ------------------
Balance at 1 January 225,741 (2,750)
Net change in trade receivable from goods sold (5,030) -
Changes in fair value (6,841) 7,447
Realised embedded derivatives during the year (4,098) (5,595)
------------------------------------------------ -------- --------
Balance at 30 June 209,772 (898)
------------------------------------------------ -------- --------
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 is based on Sabinas
life of mine which is currently 41 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, however, it is to a
reasonable change in future silver price, future exchange rate and
the discount rate used to discount future cash flows.
The following table demonstrates the sensitivity of the
Silverstream contract valuation to reasonably possible change 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 2018 (decrease) tax: increase/
(decrease)
US$ thousands
-------------------------------------------------- ------------- ----------------
Silver price 10% 67,402
(5%) (33,701)
-------------------------------------------------- ------------- ----------------
Foreign exchange rate: strengthening/(weakening)
of the US dollar 10% (240)
--------------------------------------------------
(10%) 293
-------------------------------------------------- ------------- ----------------
75 basis
Interest rate point (44,408)
(75 basis
point) 52,035
-------------------------------------------------- ------------- ----------------
Effect on
Increase/ profit before
31 December 2017 (decrease) tax: increase/
(decrease)
US$ thousands
-------------------------------------------------- ------------- ----------------
Silver price 10% 72,779
(10%) (72,779)
-------------------------------------------------- ------------- ----------------
Foreign exchange rate: strengthening/(weakening)
of the US dollar 20% (781)
--------------------------------------------------
(10%) 521
-------------------------------------------------- ------------- ----------------
90 basis
Interest rate point (58,798)
(50 basis
point) 37,935
-------------------------------------------------- ------------- ----------------
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 (see note 2
(p)). 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. Derivative financial instruments
The Group enters into certain forward and option contracts in
order to manage its exposure to foreign exchange risk associated
with costs incurred in Mexican pesos and other currencies. The
Group also enters into option contracts to manage its exposure to
commodity price risk. The types of derivative contracts outstanding
at 30 June 2018 were consistent with those outstanding at 31
December 2017.
The gold commodity options in asset positions at 30 June 2018
were less than US$0.1 million (31 December 2017: US$ nil). The gold
commodity options in liability positions at 30 June 2018 were
US$3.7 million (31 December 2017: US$18.1 million). Other than gold
commodity options, the derivative financial instruments outstanding
at 30 June 2018 and 31 December 2017 were not material.
d. 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 certain
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.
In managing its capital, the Group considers its cash and other
liquid asset position, as set out below:
As at 30 June As at 31 December
2018 2017
(in thousands of US dollars)
Cash and cash equivalents (note 13) 688,552 876,034
Debt instruments 20,054 -
Available-for-sale financial instruments
held in funds - 19,877
708,606 895,911
[1] Adjusted revenues are the revenues shown in the income
statement adjusted to add back treatment and refining costs and the
effects of gold, lead and zinc 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 gross profit plus
depreciation less administrative, selling and exploration
expenses
[3] Adjusted production cost is calculated as total production
costs less depreciation, profit sharing and the effects of exchange
rate hedging.
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.
END
IR SDFSFFFASEDW
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