Fresnillo Plc · LSE:FRES
Fresnillo — H1 2015 Earnings Presentation
50 slides from Fresnillo's earnings presentation, Aug 4, 2015
Slide 1: Interim Results: Six months ended 30 June 2015
Well placed to address cyclical uncertainties Interim Results Six months ended 30 June 2015 Octavio Alvídrez, CEO Mario Arreguín, CFO Roberto Díaz, Díaz COO August 4, 2015 David Giles, VP Exploration
Slide 2: Disclaimer
Di l i 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
Slide 3: Agenda
A d Agenda Overview > Octavio Alvídrez, CEO Operations Review > Roberto Díaz, COO Financial Review > Mario Arreguín, CFO Growth Pipeline – Exploration > David Giles, VP, Exploration – Development D l tP Projects j t > Roberto R b t Díaz, Dí COO Conclusions & Outlook > Octavio Alvídrez, Alv
Slide 4: Overview
Well placed to address cyclical uncertainties Overview
Slide 5: H1 2015 Overview
H1 2015 Overview O i – Solid first half operationally • Silver production up 11% with start-up of Saucito II more than offsetting lower production at Fresnillo • Gold p production up p 37% with Herradura and its DLP fully y operational p for the half,, and increased contributions from Noche Buena an
Slide 6: Operations Review
Well placed to address cyclical uncertainties Operations Review
Slide 7: Fresnillo Mine
Fresnillo Mine H1 Summary 1H15 silver production decreased due to: Lower silver ore grade reflecting limited access to high ore grade areas Lower volumes processed due to development delays and stope instability Actions taken: Enhanced contractor supervision Additional contractors Meas
Slide 8: Saucito Mine
Saucito Mine H1 Summary 1H15 silver production increased due to: Increase in volume processed due to Saucito II start up Higher silver ore grade resulting from increased ore throughput from higher ore grade veins Improved control of dilution Milling efficiencies at Saucito I plant (vibrati
Slide 9: Ciénega Mine
Ciénega é Mine H1 Summary 1H15 gold production decreased due to: Expected lower ore grade due to depletion of high gold ore grade areas with wider veins at Ciénega main mine Maintenance delays (mill engine replacement) in June had a smaller impact 1H15 silver production increased due to: H
Slide 10: Herradura Mine
Herradura Mine H1 Summary 1H15 gold production increased due to: Increase in ore processed with mine being fully operational post suspension in 1H14 DLP operational for full half post start-up in March 2014, resulting in increase in ore processed & higher ore grades Higher overall average sp
Slide 11: Noche Buena Mine
Noche Buena Mine H1 Summary 1H15 gold production increased due to: Higher volume of gold recovered, recovered driven by increased irrigation area Higher volumes of ore deposited on the leaching pads resulting from lower than expected stripping ratio at mined areas Partly offset by lower ore
Slide 12: Advancing our Sustainable Development
Advancing our Sustainable Development Greenhouse Gas Intensity Social Investment and Community (t (tonnes off CO2 CO2e per tonne t off mineral i l processed) d) Engagement FY13 0.019 8% Environmental awareness 28% Education FY14 0.019 39% Social welfare 25% Capacity building 1H15 0.018 Zero fataliti
Slide 13: Financial Review
Well placed to address cyclical uncertainties Financial Review
Slide 14: H1 2015 Financial Highlights
H1 2015 Financial Fi i l Hi Highlights hli ht • Adjusted revenue of US$822m, up 9.6% due to the increase in volumes produced and sold, partly offset by lower prices (Au -7.4%; Ag -18.0%) • Cost deflation in US$ $ terms of 6.8% % due to p peso devaluation • Increase in production costs of 8.5% as a r
Slide 15: Income Statement (IFRS)
I Income Statement St t t (IFRS) ACCUM JUNE CHANGE CONCEPT 1H 2015 % 1H 2014 % $ % ADJUSTED REVENUES 822.4 750.4 72.0 9.6 HEDGING (METALS) 0.8 0.0 0.8 8,971.1 TREATMENT AND REFINING CHARGES (70.9) (73.3) 2.4 (3.2) REVENUES 752 3 752.3 100 0 100.0 677 1 677.1 100 0 100.0 75 2 75.2 11 1 11.1 ADJUSTED
Slide 16: Adjusted Production Cost Analysis (Consolidated)
Adjusted Production Cost Analysis (Consolidated) CHANGE 1H 15 1H 14 $ % Adjusted Production Cost * 316.2 291.3 24.8* 8.5 Change in inventories -13.1 -60.8 47.6 -78.4 Unproductive Costs -0.2 9.2 -9.5 N/A Depreciation 159.7 133.3 26.4 19.8 PTU 6.0 60 8.6 86 -2.7 27 -31.0 31 0 Hedging (mxp/usd exchange
Slide 17: Adjusted Production Cost Analysis (Consolidated)
Adjusted Production Cost Analysis (Consolidated) CHANGE 1H 15 1H 14 $ % Adjusted Production Cost * 316.2 291.3 24.8* 8.5 Change in inventories -13.1 -60.8 47.6 -78.4 Unproductive Costs -0.2 9.2 -9.5 N/A Depreciation 159.7 133.3 26.4 19.8 PTU 6.0 60 8.6 86 -2.7 27 -31.0 31 0 Hedging (mxp/usd exchange
Slide 18: Consolidated Gross Profit Analysis
0.0 52.0 104.0 208.0 260.0 312.0 364.0 416.0 468.0 520.0 156 0 156.0 1 YTD14 Gross Proffit 295.09 USD MILLION Incr. ore vol. processed and highe er ore grade at Saucitto 95.65 2 Normalised op perations at Herradurra 3 53.40 Gross Profit MXP/U USD Devaluation effect 15.90 4 Ramp-up of Dy ynamic Leach
Slide 19: Consolidated Gross Profit Analysis
Consolidated Gross Profit Analysis Volume Processed CHANGE Silver,Gold and Lead average 1H 14 Ore Grade Noche (Mton) Buena: Volume Processed 1H 15 $ % realised prices (USc/Lb) 1H15 1H14 Chg 1H15 1H14 Chg 1H15 1H14 Chg USD MILLION (Mton) 1.42 0.78 +82.9% 273.6* 295.1 Au g/t 0.48 0.54 -11.0% -21.5 -7.
Slide 20: Cost Per Tonne (IFRS)
Cost Per Tonne (IFRS) 1H 2015 1H 2014 % CHANGE COST PER TONNE * MINE UNIT Fresnillo US$/TONNE 48.53 45.02 7.8% Saucito US$/TONNE 42.65 62.09 -31.3% 31.3% Ciénega US$/TONNE 66.66 67.61 -1.4% Herradura US$/TONNE 8.71 ** 8.03 ** 8.5% Noche Buena US$/TONNE 8.16 ** 8.89** -8.2% * Cost per tonne is calcul
Slide 21: Cash Cost (IFRS)
Cash Cost (IFRS) 1H 2015 1H 2014 % CHANGE CASH COST * MINE UNIT Fresnillo PER OZ OZ. SILVER 5 75 5.75 6 13 6.13 -6.2% 6 2% Saucito PER OZ. SILVER 0.64 3.36 -81.1% Ciénega g PER OZ. GOLD ((By-prod.) yp ) 296.99 180.64 64.4% PER OZ. GOLD (Equiv.) ** 702.08 649.50 8.1% PER OZ. GOLD (Co-prod.) ** 643.83
Slide 22: All In Sustaining Cost (US$/Oz)
All In Sustaining Cost (US$/Oz)* LIFE OF MINE 1H 2015 1H 2014 % CHANGE WEIGHTED AVERAGE CASH COST * MINE UNIT Fresnillo PER OZ. SILVER 11.05 9.93 11.3% 6.20 (2023) S Saucito it PER OZ OZ. SILVER 5 95 5.95 7 66 7.66 -22.3% 22 3% 6.00 6 00 (2021) Ciénega PER OZ. GOLD 649.97 594.58 9.3% 803.12 (2026) H
Slide 23: Margins by mine (Metal price – AISC)
Margins by mine (Metal price – AISC AISC*)) (1H15 vs. 1H14) (USD/Oz) ( ) Fresnillo Saucito Ciénega Herradura NB 10.2moz 7.4moz 6.1moz 10.6moz 48.6koz 39.8koz 103.8koz 188.3koz 63.8koz 68.4koz Chg. + -27.4% Chg. +73.3% Chg. -18.3% Chg. +81.9% Chg. +7.2% Ounces Sold Stoppage of operations continued at
Slide 24: Income Statement (IFRS): Foreign Exchange Effects
Income Statement (IFRS) Foreign Exchange Effects ACCUM JUNE CHANGE CONCEPT 1H 2015 % 1H 2014 % $ % 15.2% decrease in ADJUSTED REVENUES 822.4 750.4 72.0 9.6 HEDGING (METALS) 0.8 0.0 0.8 8,971.1 average MXN/USD TREATMENT AND REFINING CHARGES (70.9) (73.3) 2.4 (3.2) (1H15 vs vs. 1H14) REVENUES 752.3 23
Slide 25: Income Statement (IFRS): Mining Rights
Income Statement (IFRS) Mining Rights ACCUM JUNE CHANGE CONCEPT 1H 2015 % 1H 2014 % $ % Ordinary mining rights ADJUSTED REVENUES 822.4 750.4 72.0 9.6 related to operations HEDGING (METALS) 0.8 0.0 0.8 8,971.1 TREATMENT AND REFINING CHARGES (70.9) (73.3) 2.4 (3.2) REVENUES 752.3 23 100 0 100.0 6 677.
Slide 26: Cash Flow (IFRS)
C h Fl Cash Flow (IFRS) CHANGE C O N C E P T (Million USD) 1H 2015 1H 2014 $ % CASH GENERATED BY OPERATIONS BEFORE CHANGES IN WORKING CAPITAL 314.9 336.7 (21.8) (6.5) WORKING CAPITAL (18.0) (71.5) 53.5 (74.8) INCOME TAX AND PROFIT SHARING PAID (33.5) (110.5) 77.0 (69.7) NET CASH FROM OPERATING ACTIV
Slide 27: Cash Flow (IFRS)
C h Fl Cash Flow (IFRS) • Increase in gold ore inventories at • Herradura and Noche Buena $USD 16.1 • million illi • Increase in trade and other receivables, • $USD 2.2 million due to higher Au and Ag • vol. sold to Met- Mex CHANGE C O N C E P T (Million USD) 1H 2015 1H 2014 • Increase $ of prepayme
Slide 28: Balance Sheet (IFRS)
B l Balance Sh Sheett (IFRS) Change Concept (Million USD) 30-JUNE-15 31-DIC-14 % Assets Cash and Investments 475.7 449.3 5.9 Trade and Other Receivables 430.7 456.1 (5.6) Inventories 321.7 305.6 5.3 Prepaid Expenses 1.7 3.4 (50.0) Silverstream 373.6 392.3 (4.8) Derivative Financial Instruments 27.9
Slide 29: Growth Pipeline: Exploration & Development Projects
Well placed to address cyclical uncertainties Growth Pipeline: Exploration p & Development p Projects
Slide 30: Strong Organic Growth Pipeline
Strong Organic Growth Pipeline 2015 Budget: c.US$160m Pipeline allows us to focus on Fresnillo projects that have the Saucito I & II Mine Operations Herradura (DLP) 34% potential to be developed Noche Buena into low cost, Ciénega - San Ramón world-class mines Soledad &Dipolos* Development Projects S
Slide 31: H1 Exploration Update
H1 Exploration Update PEA in Good progress grades continue to be Focus on discovered South of at depth district Promising results Focus on Cebollitas cluster Positive drilling results: increase in inferred resources Drilling continues at several locations around district Good drilling results + prom
Slide 32: Guanajuato District
Guanajuato District N GUANAJUATO 21,000 m Dolores El Gigante Hidalgo León Opulencia Sirena Barragana Guanajuato Las Torres Silao Gloria RECURSOS @ DICIEMBRE DE 2014 LA JOYA Au Eq (000) oz Ag Eq (000) oz 16,000 m San Gregorio Opulencia (Gigante) 24,000 Potrerillos Gloria 120 Co. Blanco 11,000 La Joya
Slide 33: Expected delivery of growth
Expected delivery of growth Expected Avg. Investm ent YEAR (US$ m illion) Annual 2015 2016 2017 2018 2019 2020 Production (1) (2) PROJECT CONSTRUCTION LEACHING 10.3 m ill Oz Ag g PLANT 515 & 44 thds Oz SAN JULIÁN PRODUCTION Au CONSTRUCTION FLOTATION PLANT MINE DEVELOPMENT & PLANT ADEQUATION FRESNILL
Slide 34: Approved Projects
App o ed Projects Approved P oje ts San Julián Pyrites Plant Key metric estimates Key metric estimates A Avg. annuall silver il production d ti 10 3 moz 10.3 A Avg. annuall silver il production d ti 3 5 moz 3.5 Avg. annual gold production 43.9 koz Avg. annual gold production 12.8 koz Pre-operative c
Slide 35: Potential Brownfield Expansions
B o nfield Expansions Potential Brownfield E pansions Ciénega Fresnillo Centauro Extension Centauro Deep Optimisation Optimisation Potential underground Natural N t l evolution l ti off Optimisation project to Optimisation project to mine beneath the Description the Centauro pit at increase capacity
Slide 36: Advanced Exploration Projects
Ad an ed Exploration Advanced E plo ation Projects P oje ts Juanicipio (JV with MAG Silver. Fresnillo: 56%) Orisyvo 8km from the Fresnillo mine; Juanicipio’s mineral zones are Assessing a 8,000TPD mine with a DLP processing facility; located in silver-gold rich sulphide shoots of the veins. focusing
Slide 37: Achieving 65moz silver by 2018
Achieving 65moz silver by 2018 Thousand Oz Attributable Juanicipio - 56% 100,000 Pyrites Plant 90,000 San Julián 80,000 Saucito II 70,000 60 000 60,000 Saucito I 50,000 Noche Buena 40,000 H Herradura d 30,000 Ciénega Expansion 20,000 Ciénega 10,000 9,000 TPD Fres Expansion - Fresnillo 2014 2015 2016
Slide 38: Achieving 750koz gold by 2018
Achieving 750koz gold by 2018 Thousand Oz Attributable Orisyvo 1,000 Juanicipio - 56% 900 San Julián 800 Pyrites Plant 700 Saucito II 600 Saucito I 500 Ciénega Expansion 400 Ciénega 300 Fresnillo 200 Nochebuena 100 Dynamic y Leaching g - 2014 2015 2016 2017 2018 Herradura Yr 33
Slide 39: CAPEX & Exploration Spend
E plo ation Spend CAPEX & Exploration CAPEX Expectations E pectations US$ Million 2015 Million Usd 900 Sustaining New Prior • Sustaining $145 $185 800 • Mining g Works $105 $87 700 (Underground) • Mining Works 600 $89 $89 (Stripping) 500 New Projects 400 • San Julián $130 $133 • Pyrites Plant $1 $60
Slide 40: Conclusions & Outlook
Conclusions & Outlook
Slide 41: Immediate Areas of Focus
Immediate Areas of Focus • Fresnillo: stabilise and then improve ore grades and production to provide a solid base for potential expansion • Saucito: efficiency improvements at Saucito II plant in 1H16 • Ciénega: conclude analysis of alternatives for potential expansion • Herradura: expect p to reac
Slide 42: Conclusions and Outlook
C Conclusions l i and dOOutlook tl k • Pricing environment continues to be challenging • However our strategic objectives remain unchanged – Invest through the cycle, delivering growth and returns for our shareholders – Low cost operating mines to continue to provide a solid platform for growth – De
Slide 43: Investment Case
Investment Case World-class assets Strong organic growth pipeline Operational excellence Competitive p cash cost performance p Financial strength and flexibility St Strong community it supportt 37
Slide 44: Appendix
Well placed to address cyclical uncertainties Appendix
Slide 45: Contribution by mine and by metal to Adjusted Revenues
Contribution by mine and by metal to Adjusted Revenues 1 By mine H1 2015 Adjusted Revenues : US$822.4m By metal 10% 20% 4% % 4% 28% 51% 41% 31% 11% Fresnillo Saucito Ciénega Silver Gold Herradura Noche Buena Lead Zinc Fresnillo Ciénega g Herradura Saucito Noche Buena Consol Gold 16.48 9.9% 48.09 55.
Slide 46: Adjusted Revenues (IFRS)
Adjusted Revenues (IFRS) ACCUM JUNE CHANGE BY: P R O D U C T (Million USD) 1H 2015 1H 2014 VOLUME PRICE TOTAL GOLD 421.8 331.5 119.3 (29.0) 90.3 SILVER 332.7 373.3 29.5 (70.2) (40.7) LEAD 31.8 21.8 13.2 (3.2) 10.0 ZINC 36.1 23.7 11.8 0.6 12.4 ADJUSTED REVENUES 822 4 822.4 750 4 750.4 173 8 173.8 (10
Slide 47: Breakdown of Adjusted Production Costs
Breakdown of Adjusted Production Costs 1.61% 4.85% Adj Prod Cost: US$316.2m 10.10% 29.49% 14.38% 1 C t Contrac O Mat Op M t E Energy & Di Diesell Mainten Person Others Freights 1 Contractors are hired to execute specific tasks. tasks Fees paid include labour, operating materials, equipment, 16.79% 2
Slide 48: Consolidated Cost Inflation (1H15 vs. 1H14, USD Based)
Consolidated Cost Inflation (1H15 vs. 1H14, USD Based) Unit Price Weighted Increase % Weight (*) Average Labour Unionized Personnel -8.3% 7.4% -0.6% Employees -9.3% 2.7% -0.3% Weighted -8.5% Operating Materials -2.1% 21.3% -0.4% Energy Electric Energy -31.3% 7.4% -2.3% Diesel -5.9% 9.4% -0.6% Gasoli
Slide 49: Contribution by mine to Gross Profit
Contribution by mine to Gross Profit CHANGE 1H 15 1H 14 US$ % Fresnillo 50.2 18.0% 117.4 37.5% (67.2) (57.2) Herradura 93.6 33.6% 59.9 19.1% 33.7 56.3 Ciénega 10.3 3.7% 28.6 9.1% (18.3) (64.0) Saucito 127.2 45.6% 85.0 27.2% 42.2 49.6 Sol & Dipolos (3.6) -1.3% (5.0) -1.6% 1.4 N/A Noche Buena 1.1 0.4%
Slide 50: Income Statement (IFRS): Exploration Expenses
Income Statement (IFRS): Exploration Expenses ACCUM JUNE CHANGE C O N C E P T (Million USD) 1H 2015 % Centauro%Deep $ 1H 2014 15.7 % Lucerito 0.1 ADJUSTED REVENUES 822.4 Ciénega 750.4 72.0 8.7 9.6Huacravilca 0.1 HEDGING (METALS) 0.8 Herradura 0.0 0.8 7.2 8,971.1Cebadillas 0.1 TREATMENT AND REF