Fresnillo lowers gold production guidance amid Covid restrictions

The FTSE 100 company said gold production was down 6.4% quarter-on-quarter in the second three months of the year at 184,400 ounces, and fell 16.7% year-on-year.

Despite the ongoing uncertainty, 2020 silver production guidance remained in the range of 51 million to 56 million ounces, including Silverstream, while gold production was now expected to be in a range of 785,000 to 815000 ounces, down from 815,000 to 900,000 ounces, as a result of Covid-19 related disruption.

It put the quarterly improvement in silver production down to a higher ore grade at Fresnillo and, to a lesser extent, a higher ore grade at Ciénega.

The fall in silver production on the year, however, was due to the expected lower ore grade at Saucito, and to a lesser extent, a lower ore grade at the San Julián Disseminated Ore Body and lower volumes of processed ore and ore grades at San Julián Veins.

For the first half, silver production was down 2.7% year-on-year at 26.8 million ounces, due to the expected lower ore grade at Saucito, a lower contribution from the Silverstream and a lower volume of processed ore at San Julián Veins, mitigated by a higher ore grade at Fresnillo.

The 6.4% fall in quarterly gold production, meanwhile, was due to a lower volume of ore processed at Herradura as a result of Covid-19 restrictions, which the board said was mitigated by the ability to continue processing inventories both on the leaching pads and the dynamic leaching plants.

It said the year-on-year drop in production for the second quarter, and the 11.8% fall in first half production, was due to lower volumes of processed ore at Herradura and Noche Buena.

Looking at byproducts, Fresnillo said lead and zinc production increased 16.4% and 18% respectively over the first quarter, driven primarily by higher ore grades at Fresnillo.

Year-on-year, lead and zinc production increased 24.1% and 29.4% for the second quarter, due to higher ore grades at Fresnillo and Saucito, as well as a higher volume of processed ore at the latter, offset by a lower ore grade at San Julián.

First half by-product lead production increased 19.6% over 2019, due to higher ore grades at Fresnillo, Saucito and Ciénega, while first half zinc production was ahead 16.4% due to higher ore grades at Fresnillo, Saucito and Ciénega, offset by a lower ore grade at San Julián.

On the development front, Fresnillo said that during the second quarter, the pace of progress at Juanicipio slowed due to Covid-19 restrictions.

The overall development timetable still remained unchanged, however, with development ore due to be processed through the Fresnillo plant in the coming weeks at an average rate of 16,000 tonnes per month, and the Juanicipio processing plant expected to be commissioned mid-2021.

Mine development continued, with the board expecting the first production stope to be fully prepared by the end of the third quarter.

Construction of the second phase of the Pyrites plant in the Fresnillo district advanced during the period, and was on track and on budget.

As a direct result of Covid-19 related disruption, there could be a possible delay in final inspections by the authority, which could defer start-up of commercial production from the third to the fourth quarter.

Fresnillo flotation plant optimisation, to cope with a higher content of lead and zinc, was also progressing according to plan, and was expected to be complete on time by the second half.

“Despite [Covid-19 related] challenges, I am pleased to report resilient production performance with further progress made on our mine improvement initiatives,” said chief executive officer Octavio Alvídrez.

“As a result, we are maintaining our silver guidance for the full year, though we have reduced our gold guidance due to Covid-19 related working restrictions mainly at our Herradura and Noche Buena mines, which have impacted production volumes.”

Alvídrez said the company’s development projects remained on track, with the Pyrites Plant and optimisation of the beneficiation plant, both at Fresnillo, due for completion in the second half of the year, while Juanicipio also remained on schedule.

“In the face of an unprecedented health crisis, this has been a positive quarter for Fresnillo, a testament of the excellent commitment of our people and the strength of our operations.”

At 0934 BST, shares in Fresnillo were up 8.19% at 1,156.5p.