Fresnillo robust despite weak metals prices

Weak metals prices had a significant impact on Fresnillo in 2015, though the company was appearing strong in its results for the calendar year on Tuesday.

The FTSE 100 company saw adjusted revenue rise 2.5% to $1.58bn, with higher volumes more than offsetting lower metal prices.

Gross profit and EBITDA were $433.1m and $547.5m, which represented reductions of 16.9% and 3.5% respectively. Profit from continuing operations was $200.4m, a reduction of 18.4%.

The company said the devaluation of the Mexican peso against the US dollar positively affected production costs, but also resulted in increased deferred taxes with a negative impact on its effective tax rate.

Net cash from operating activities was $542.9m, against $121.6m in 2014. Fresnillo reported capital expenditures of $474m and an exploration spend of $140m.

The company's board said it maintained financial flexibility, with a year-end cash balance of $500.1m and a net debt position of $296.9m on 31 December.

Fresnillo's basic and diluted earnings per share from continuing operations were 9.4c, and adjusted earnings per share were 6.9c, down 36.1% and 6.8%.

The board recommended a final dividend of 3.35c per share, equivalent to $24.7m.

"I am pleased to report a solid overall performance against a backdrop of continued global economic uncertainty and weak precious metals prices. Silver production was at the top end of our guidance, whilst in gold we surpassed our long term 2018 target," said CEO Octavio Alvidrez.

"Our performance was driven by substantial operational progress during the year: we ramped up Saucito II, reached steady state at Herradura, and have begun to see the results of the measures we have put in place to solve development delays at Fresnillo," he added.

Alvidrez said the company's development projects advanced largely according to plan, with commissioning of phase 1 at San Julián due in the second quarter of 2016.

He said the firm also maintained a strong financial position, ending the year with a healthy cash balance, and without impairments.

"Weaker precious metals prices clearly impacted financial performance, but this was offset by higher volumes; we continued to generate sound profit margins and substantial cashflow from operating activities," Alvidrez explained.

In light of the weak precious metals price backdrop, Alvidrez said Fresnillo reduced 2015 capital expenditure and exploration spend from budgeted levels, and have similarly reduced these budgets for 2016, deferring certain investments whilst favouring those which accelerate cashflow generation as part of the company's contingency plan.

"We will continue to focus on further cost reductions, productivity improvements and value preservation measures as we work towards our 2016 production targets."