Fresnillo shares lose their shine as profit slumps

In the year to 31 December 2018, pre-tax profit fell to $483.9m from $741.5m in 2017, with earnings before interest, tax, depreciation and amortisation down 13.7% to $915.1m and gross profit 15.6% lower at $780.7m.

Fresnillo attributed the drop in gross profit to a higher stripping ratio at the Herradura mine and higher depreciation and increased cost inflation across the group.

Total revenue during the year was up 0.5% to $2.24bn, while silver production increased 5.3% to a record 61.8 million ounces and gold output rose 1.3% to 922,527 ounces. While gold production surpassed the expectations the company had at the beginning of the year, silver production was a miss and Fresnillo said it was "disappointed" not to meet its long-term silver target of 65 moz.

This was mainly due to lower-than-expected ore grades at the Fresnillo and Saucito mines, and some operational issues.

Chief executive officer Octavio Alvidrez said: "Looking ahead, I expect 2019 to be another challenging year. We face a number of headwinds, including lower prices for precious metals and higher inflation. I also expect to see higher depreciation costs as a result of the investments we have made in recent years into the operations, while we continue to expect to work through operational issues and lower grades at certain mines during the year. All this has resulted in us slightly lowering our silver production guidance for 2019.

"Our strategic goals remain unchanged, and we are committed to maintaining our position as the world's largest primary silver company and a leading gold producer in Mexico. Our model is proven, our people are skilled, experienced and dedicated, and a track record of creating value through growth and returns will continue to be our defining characteristic."

At 0925 GMT, the shares were down 7.5% at 902.60p.