Fresnillo production on track for upper guidance as silver prices strengthen

A production update from Fresnillo showed the precious metals miner remains on course to hit its full-year guidance, with third-quarter silver production dwindling to 11.04m oz but almost flat on the previous year and slightly lower than the preceding quarter.

The Mexico-based group increased quarterly gold production 16% on the same period last year to 182,000 oz, due to a rise in gold recovery at its Herradura open pit mine, increased ore deposited at nearby Noche Buena and a higher volume processed at the underground Saucito mine.

"We have begun to see the results of the measures we have taken to solve the development delays at Fresnillo, with an improvement in both ore grade and production levels from the previous quarter at the mine," said chief executive Octavio Alvídrez.

"We have also made good progress in moving towards steady state at Herradura, and our San Julián project remains on track for stage 1 commissioning in the first half of next year."

With this progress and 34.8moz of silver produced so far this financial year and 547koz of gold, the FTSE 100 company is confident of hitting its 2015 guidance of 45-47moz silver and the upped target of 715-730koz gold.

The company unfortunately suffered a fatal accident at the Fresnillo mine in the period, which Alvidrez said was due to a breach of safety protocol and ruined the company's zero fatalities target.

Analysts at Investec said the quarterly performance "appears reasonable" but added that "what is more relevant perhaps is the sustainability in the strengthening of the silver price of recent weeks, reflecting strength in gold".

Merrill Lynch said the production looked on track for the top end of guidance, with silver and gold output 24% and 26% of its full year number respectively.

"We model the top end of silver guidance at 47moz of silver and (a conservative) 715 koz of gold. We leave our production model unchanged. Whilst the company has delivered another no surprises quarter and the top end of guidance should be achieved valuation still looks full in our view."

Shares in Fresnillo were approaching five-month highs in early trade on Wednesday, up 1.7% to 748p at 1015 BST.