Fresnillo Plc · LSE:FRES
Fresnillo — H1 2016 Earnings Presentation
46 slides from Fresnillo's earnings presentation, Aug 2, 2016
Slide 1: Interim Results
“Driving Long-Term Value from Solid Foundations” Interim Results Six months ended 30 June 2016 Octavio Alvídrez, CEO Mario Arreguín, CFO 2 August 2016
Slide 2: Disclaimer
Disclaimer This document includes statements that are, or may be deemed to be, “forward-looking statements”. These forward- looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “int
Slide 3: Agenda
Agenda § Overview > Octavio Alvídrez, CEO § Operations Review > Octavio Alvídrez, CEO § Financial Review > Mario Arreguín, CFO § Exploration, Growth & Outlook > Octavio Alvídrez, CEO § Q&A 3
Slide 4: Overview
“Driving Long-Term Value from Solid Foundations” Overview
Slide 5: Introduction
Introduction Ø Precious metals prices have performed strongly since the start of the year Ø Solid first half performance Ø Strategic objectives remain unchanged ˗ Strict operational and financial discipline ˗ Investment decisions continue to be evaluated against key criteria ˗ In-line with contingen
Slide 6: Overview
Overview Ø Strong production ˗ Silver +6.1%; gold +23.0% ˗ Full year gold guidance raised to a record of 850-870 koz; accelerating medium term plan Ø Substantial operational progress ˗ Continue to progress turnaround plan at Fresnillo ˗ Decreased inventories further at Herradura ˗ Increased capacity
Slide 7: Operations Review
“Driving Long-Term Value from Solid Foundations” Operations Review
Slide 8: Fresnillo Mine
Fresnillo Mine H1 Summary Ø Increased silver production ˗ Higher ore grades • Regained access to higher grade areas at San Carlos & San Alberto veins ˗ Offset lower ore processed • Maintenance delays in Q2 • Preparation of additional production stopes Ø Problems caused by maintenance delays have bee
Slide 9: Saucito Mine
Saucito Mine H1 Summary Ø Increased silver production – ahead of plan ˗ Higher ore throughput • Saucito II ramp up • Increased ore throughput from West & Central Jarillas areas • Capacity increase (vibrating screens) ˗ Expected lower grade Ø Planned capacity increase achieved in 1Q16: total nominal
Slide 10: Ciénega Mine
Ciénega Mine H1 Summary Ø Lower gold production ˗ Lower grade from depletion of high gold ore grade veins at Ciénega ˗ Lower gold grades at Rosario & Las Casas areas ˗ Increased dilution from narrower veins (East & West areas) ˗ Lower volume processed due to harder mineral extracted from Rosario, La
Slide 11: Herradura Mine
Herradura Mine H1 Summary Ø Increased gold production due to higher overall speed of recovery & increased ore volume processed ˗ Following commissioning of 2nd MC plant: • Elimination of bottleneck in processing solution from both leaching pads & DLP ˗ Offset lower ore grade as material deposited fr
Slide 12: Noche Buena Mine
Noche Buena Mine H1 Summary Ø Gold production increased ˗ Higher speed of recovery • New mineral layers on leaching pads ˗ Higher ore grade • Richer banks processed H1 Performance 1H 16 1H 15 % Ore processed mt 8.6 8.7 -1.2 Looking Forward Total volume mt 40.3 42.3 -4.7 hauled Ø Expect 2H16 average
Slide 13: San Julián
San Julián Key metric estimates Avg. annual silver production 10.3 moz Avg. annual gold production 43.9 koz Pre-operative capex $515 m Cash cost (average LoM) $7.77 /oz All-in sustaining costs (average LoM) $9.33 /oz DLP capacity (phase 1) 3,000TPD Flotation plant capacity (phase 2) 6,000TPD Life of
Slide 14: San Julián (DLP phase 1)
San Julián (DLP phase 1) 14
Slide 15: San Julián (Flotation plant phase 2)
San Julián (Flotation plant phase 2) 15
Slide 16: Safety
Safety Ø Two fatal injuries occurred during 1H16 Ø Total Recordable Injury Frequency Rate 1H16: 12.55 injuries per 1,000,000 hours (20.98 in 2015) Ø Lost Time Injury Frequency Rate 1H16: 4.64 injuries per 1,000,000 hours (5.87 in 2015) Ø Launched the “Safety Folder” Ø Reinforces controls, follow-up
Slide 17: Financial Review
“Driving Long-Term Value from Solid Foundations” Financial Review
Slide 18: 1H16 Financial Highlights
1H16 Financial Highlights Ø Adjusted revenues increased 16.7% vs. 1H15 mainly as a result of higher gold volumes sold (+24.5%) and the higher realised gold price (+3.3%) Ø Adjusted production cost decreased 5.2% ˗ Mainly due to favourable FX effects (19.3% average spot peso devaluation vs. dollar);
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—— ae FRESNILLO. BLANK
Slide 20: Income Statement (IFRS)
Income Statement (IFRS) ACCUM JUNE CHANGE CONCEP T (Million USD) 2016 % 2015 % $ % ADJUSTED REVENUES 959.4 822.4 137.0 16.7 HEDGING (METALS) 1.5 0.8 0.7 84.4 TREATMENT AND REFINING CHARGES (74.1) (70.9) (3.1) 4.4 REVENUES 886.9 100.0 752.3 100.0 134.6 17.9 ADJUSTED PRODUCTION COST (299.7) (33.8) (31
Slide 21: Income Statement (IFRS)
Income Statement (IFRS) ACCUM JUNE CHANGE CONCEP T (Million USD) 2016 % 2015 % $ % Volume: US$129.3m Price: US$7.8m ADJUSTED REVENUES 959.4 822.4 137.0 16.7 HEDGING (METALS) 1.5 0.8 0.7 84.4 TREATMENT AND REFINING CHARGES (74.1) (70.9) (3.1) 4.4 REVENUES 886.9 100.0 752.3 100.0 134.6 17.9 1H16 ADJUS
Slide 22: Consolidated Cost Inflation 1H16 (USD Based)
Consolidated Cost Inflation 1H16 (USD Based) 20
Slide 23: Breakdown of Adjusted Production Costs
Breakdown of Adjusted Production Costs 1.27% 4.81% 19.42% 9.51% 19.04% 28.92% 17.04% Adj Prod Cost: US$299.7m Operating Materials Energy & Diesel Maintenance 5.78% incurred by contractors 1.63% incurred by contractors 1.84% incurred by contractors Labour Others Freights Charge for use of contractor’
Slide 24: Adjusted Production Cost Analysis (Consolidated)
Adjusted Production Cost Analysis (Consolidated) 1H 16 1H 15 $ % Adjusted Production Cost * 299.7 316.2 -16.5* 5.2 Change in work in progress 37.6 -13.4 51.0 N/A Depreciation 165.3 159.7 5.6 3.5 PTU 9.9 6.0 4.0 67.2 Hedging (mxp/usd exchange rate) 2.6 (Loss) 10.2 (Loss) -7.6 74.8 USD MILLION Invento
Slide 25: Adjusted Production Cost Analysis (Consolidated)
Adjusted Production Cost Analysis (Consolidated) CHANGE 1H 16 1H 15 $ % Adjusted Production Cost * Volume 299.7 Processed (Mton) 316.2 -16.5* 5.2 Change in work in progress 37.6 1H16 1H15 -13.4 Chg 51.0 N/A Ciénega 165.3 0.64 0.65 -1.8% 159.7 5.6 3.5 Depreciation PTU Fresnillo9.9 1.19 1.21 6.0 -1.4%
Slide 26: Consolidated Gross Profit Analysis
0.0 49.0 98.0 147.0 196.0 245.0 294.0 343.0 392.0 441.0 490.0 1 YTD15 Gross Profit USD MILLION 273.6 2 Increase attributable Gross Profit to operations (ore grade,volume of ore 82.8 processed and efficiencies) 3 MXP/USD 1H16 394.4* Devaluation effect 22.2 4 Increase attributable to other external 1H
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—— aN FRESNILLO. BLANK
Slide 28: Consolidated Gross Profit Analysis
0.0 18.0 36.0 54.0 72.0 90.0 108.0 126.0 144.0 162.0 180.0 1 Increased production at Herradura (HL) 57.2 USD MILLION 2 Write off inventory reversal at S&D and NB 22.6 3 MXP/USD Devaluation effect 22.2 4 Higher ore grade at 18.9 Fresnillo Gross Profit 5 Higher Au price 15.5 Higher production at NB 11
Slide 29: Consolidated Gross Profit Analysis
Consolidated Gross Profit Analysis Ore Grade NB: Ore Grade Ciénega: 1H16 1H15 Chg 1H16 1H15 Chg CHANGE Au g/t 0.49 0.48 +2.2% Zn 1H16 g/t 0.99 1H15 0.75 +32.1% $ % Ag g/t 138.83 117.28 +18.4% USD MILLION Decrease Pb394.4* 273.6 120.8 +44.1% Ore Grade Saucito: GrossinProfit inventory at NB: g/t 0.70
Slide 30: Cash Flow (IFRS)
Cash Flow (IFRS) CHANGE C O N C E P T (Million USD) YTD 2016 YTD 2015 $ % CASH GENERATED BY OPERATIONS BEFORE CHANGES IN WORKING CAPITAL 475.2 314.9 160.3 50.9 WORKING CAPITAL 0.5 (18.0) 18.6 N/A INCOME TAX AND PROFIT SHARING PAID (67.9) (33.5) (34.4) 102.9 NET CASH FROM OPERATING ACTIVITIES 407.9 2
Slide 31: Cash Flow (IFRS)
Cash Flow (IFRS) • Decrease in gold ore inventories at • Herradura and Noche Buena: $USD4.6m • Increase in trade and otherCHANGE receivables C O N C E P T (Million USD) YTD 2016 • fromYTD the 2015 higher volumes $sold: $USD10.7m % • Increase in accounts payable: $USD5.2m CASH GENERATED BY OPERATIONS
Slide 32: Balance Sheet (IFRS)
Balance Sheet (IFRS) Change Concept 30-JUN-16 31-DIC-15 % Assets (Million USD) Cash and Investments 701.2 500.1 40.2 Trade and Other Receivables 278.4 305.7 (8.9) Inventories 295.9 300.6 (1.5) Prepaid Expenses 1.7 3.0 (41.5) Silverstream 471.6 384.8 22.6 Derivative Financial Instruments 1.1 117.1 (9
Slide 33: Contribution to the Adjusted Revenues and Gross Profit 1H16
Contribution to the Adjusted Revenues and Gross Profit 1H16 1 1H16 Adjusted Revenues : US$959.4m 1H16 Gross Profit Contribution2 By mine By metal By mine 4% 6% 19% 4% 13% 8% 37% 18% 36% 32% 57% 26% 10% 32% Fresnillo Saucito Ciénega Silver Gold Fresnillo Saucito Ciénega Herradura Noche Buena Lead Zin
Slide 34: Cost Per Tonne (IFRS)
Cost Per Tonne (IFRS) ACCUM JUNE CHANGE 1H 2016 1H 2015 % CHG. COST PER TONNE * MINE UNIT Fresnillo US$/TON 43.80 48.53 -9.8% Saucito US$/TON 40.34 42.65 -5.4% Ciénega US$/TON 55.18 66.66 -17.2% Herradura US$/TON 7.61 ** 8.71 ** -12.6% Noche Buena US$/TON 7.80 ** 8.16 ** -4.5% * Cost per tonne is ca
Slide 35: Cash Cost (IFRS)
Cash Cost (IFRS) ACCUM JUNE CHANGE 1H 2016 1H 2015 % CHG. CASH COST * MINE UNIT Fresnillo PER OZ. SILVER 3.56 5.75 -38.1% Saucito PER OZ. SILVER 0.83 0.64 31.2% Ciénega PER OZ. GOLD (By-prod.) -121.68 296.99 -141.0% PER OZ. GOLD (Co-prod.)** 530.27 643.83 -17.6% PER OZ. SILVER (Co-prod.) ** 6.99 8.7
Slide 36: Margins by mine (Metal price – Cash Cost)
Margins by mine (Metal price – Cash Cost) (1H16 vs. 1H15) (USD/Oz) Fresnillo Saucito Ciénega Herradura Noche Buena 7.4Moz. 7.7Moz. 10.6Moz. 10.4Moz. 39.8Koz. 34.0Koz. 186.8Koz. 246.2Koz. 70.0Koz. 99.6Koz. Chg. + 3.3% Chg. -1.4% Chg. -14.4% Chg. +31.8% Chg. +42.4% Ounces Sold Stoppage of operations c
Slide 37: All In Sustaining Cost (US$/Oz)
All In Sustaining Cost (US$/Oz)* 1H 2016 1H 2015 % CHG. CASH COST * MINE UNIT Fresnillo PER OZ. SILVER 8.31 11.05 -24.8% Saucito PER OZ. SILVER 5.53 5.95 -7.2% Ciénega PER OZ. GOLD 525.86 649.97 -19.1% Herradura PER OZ. GOLD 721.24 873.23 -17.4% Noche Buena PER OZ. GOLD 826.11 940.87 -12.2% * All in
Slide 38: Exploration, Growth and Outlook
“Driving Long-Term Value from Solid Foundations” Exploration, Growth and Outlook
Slide 39: Exploration Highlights
Exploration Highlights Ø Continued investment to maintain medium and long-term growth pipeline Ø Total risk capital of US$59.8m invested in exploration 1H16 Ø Exploration drilling: Ø 265km across Fresnillo, Herradura, Guanajuato, San Julián & Guazapares Districts in Mexico, and Pilarica & Huacravilc
Slide 40: Expected Delivery of Growth
Expected Delivery of Growth (1) (2) Expecte d Avg. Inves tm ent YEAR (US$ million) Annual 2015 2016 2017 2018 2019 2020 2021 Production PROJECT CONSTRUCTION LEACHING PLANT 10.3 moz oz Ag 515 & 44 k oz Au SAN JULIÁN PRODUCTION CONSTRUCTION FLOTATION PLANT LEACHING PLANT 3.5 m oz Ag & PYRITES PLANT CO
Slide 41: Brownfield Projects
Brownfield Projects Centauro Ciénega Fresnillo Pyrites Plant Centauro Deep Extension Optimisation Optimisation Potential Tailings Natural evolution Optimisation Optimisation underground mine processing from Description of the Centauro pit project to increase project to increase beneath the Fresnillo
Slide 42: Expected Silver Production Profile
Expected Silver Production Profile Million Oz Attributable 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 - 2016 2017 2018 Yr Target of 65 moz silver by 2018 39
Slide 43: Expected Gold Production Profile
Expected Gold Production Profile Thousand Oz Attributable 1,100.0 1,000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 - 2016 2017 2018 Yr Target of 750 koz gold by 2018 40
Slide 44: CAPEX Spend Expectations
CAPEX Spend Expectations Million Usd 900 800 700 600 500 400 300 200 100 0 2016 2017 2018 Sustaining CAPEX New Projects 41
Slide 45: Conclusions and Outlook
Conclusions and Outlook Ø Precious metal prices have performed strongly YTD, but sustainability of any rally in gold and silver prices will always remain uncertain Ø Therefore maintaining our cautious approach: contingency plan remains in place Ø Proven strategy remains unchanged ˗ Invest through th
Slide 46: Investment Case
Investment Case Strong balance sheet High quality assets Low-cost and flexible operations Disciplined approach to development Commitment to sustainable business practices 43