Annual General Meeting Statement

RNS Number : 8511D

Fresnillo PLC

02 May 2013

 

Fresnillo plc

28 Grosvenor Street

London W1K 4QR

United Kingdom

www.fresnilloplc.com

Annual General Meeting Statement

Fresnillo PLC will hold its Annual General Meeting today at 11am in London, and Mr. Alberto Baillères, Chairman, will make the following statement:

"I am pleased to report another year of good operational performance for Fresnillo plc, which is particularly notable in a year of challenges for the mining industry and management transitions in our company.

 

We were pleased to announce the appointment of Octavio Alvídrez as Fresnillo plc's new Chief Executive Officer following the retirement of long-time CEO Jaime Lomelín. Mr Alvídrez is an experienced and effective leader. We are confident that he will build on the Company's past achievements and, with Board guidance and the support of an outstanding executive team, lead Fresnillo to the next stage of growth and performance. His first initiatives as CEO display a keen alignment with our values of operational excellence.

As you will be aware, precious metal miners are operating in an environment of exceptionally volatile metal prices, higher production costs and growing social and environmental pressures.

In 2012, the weak gold price in the first half of the year recovered during the second half of the year as central banks increased reserves and investors sought protection against economic uncertainty and possible inflation.  The pattern for silver was similar, although its recovery in the second half of the year was less than that for gold, so while our average realised price for gold ended the year around 6 per cent higher than in 2011, silver prices were around 10 per cent lower.

The volatility has extended into 2013, with particularly steep falls in prices seen in mid-April as a result of speculation of European central banks selling their gold reserves as well as expectations that Western economies would stop implementing quantitative easing measures. These trends may continue into the remainder of this year but your management continue to bear down on costs, and keep Fresnillo within the lowest quartile of the cost curve with industry leading margins. This comes despite industry pressures arising from higher labour and energy costs and higher unit costs for operating materials such as explosives, tyres and reagents.

Against this backdrop, in 2012 Fresnillo plc moved steadily forward on executing its organic growth strategy, resulting in record gold and stable silver production. The continued ramp up of Saucito, combined with the increase in the Silverstream volume, offset the anticipated decline in silver grades at Fresnillo. Gold production benefited from the start-up of the Noche Buena mine which was completed on schedule and on budget, as well as increased contributions from Ciénega and Saucito. The benefits of our strategy to consolidate districts are evident in the efficiencies achieved at Herradura, Ciénega and Fresnillo.

 

We are also pleased to report significant progress in continuing to grow our strong ore resource base. In addition to our extensive drilling campaigns, we carried out underground development to confirm resources at San Julián, Orisyvo and Centauro Deep, completed the pre-feasibility studies for Juanicipio and San Julián, and increased ore reserves at most operations with particular success at Noche Buena and Saucito.  The Group's production and project implementation schedule is on track to meet our growth targets. Furthermore, a large number of prospects in early stage exploration, in both current and new districts, should ensure our longer term project pipeline.

 

Our financial results in 2012 reflected the challenging metal price environment. Fresnillo plc reported adjusted revenue of US$2,287.2 million in 2012, down 0.9% from 2011, and EBITDA of US$1,311.5 million, 14.8% lower than in the previous year. Attributable net profit, excluding Silverstream effects, was US$652.1 million, down 17.2%. These figures mainly reflect three things:

·     the lower average silver prices,

·     the expected decline in ore grades at the Fresnillo, Herradura and Soledad-Dipolos mines,

·     and higher production costs.

 

However these factors were partially mitigated by the contribution of our new operations at Noche Buena and Saucito, by higher tonnages of ore processed at all our mines, by the higher gold prices and by the devaluation of the Mexican peso against the US dollar. Furthermore we retain our strong balance sheet, with cash holdings of US$614 million at the end of the year and no debt.

 

The approach of your Board therefore, is to take a long term view, with a value creation strategy that does not change with unpredictable short-term shifts in market dynamics. We conduct regular reviews of the Group's financial liquidity and future cash requirements, and as we announced at our first quarter production results last month, we will continue to make our capital allocation decisions accordingly.

It seems appropriate to reaffirm the Group's value creation strategy as we approach the fifth anniversary of the listing of Fresnillo plc shares on the London Stock Exchange and at the mid-point of our ambitious 10-year growth targets. We will continue to pursue operational excellence and the disciplined development of new projects by investing across price cycles, whilst bolstering the safety and sustainability framework in which we operate.  Financial returns for our shareholders, job creation for our workers and economic development of our local communities must always be hallmarks of this strategy.

 

As a Board and through our HSECR Committee, we work to ensure that the Group adheres to responsible and sustainable business practices. I remain personally focused on the areas of safety and community relations as critical components of our licence to operate.

 

We expect market volatility to be a persistent factor in the environment in which we operate, given an increasingly complex and often imbalanced global economy. As we have seen, there is no certainty that the fundamentals will remain in place to support long-term demand for both silver and gold, but we are well positioned to supply those markets at competitive costs and profitable levels for our stakeholders.

 

I am confident that Fresnillo plc will continue to advance its proven strategy in precious metals in 2013 and beyond. As you will have seen from our first quarter production report, we began the year strongly with results that are in line with our targets for the year. In addition, the dynamic leaching plant at Herradura will be commissioned during the year; construction has commenced at San Julián which potentially can become a significant new mining district; the expansion of Saucito has been approved and we will analyse the best way to further optimise production.

 

The Board recognises the challenging environment for mining companies and has decided to continue to invest in only those projects that are essential to achieve our long term targets and which meet certain investment criteria. We will only invest in those projects which we believe have attractive internal rates of return, are low cash cost and will continue to create value for our stakeholders. We will continue to exercise caution and discipline when analysing new projects and as we announced at our first quarter results we are reviewing all capital expenditure and future exploration projects. Nonetheless we will continue to implement our strategic plan and invest through the cycles to maximise benefits for all our stakeholders.

The Board has authorised a total budget of US$279.6 million to be invested in exploration and early stage underground development in 2013, a decrease of 12.3% over 2012. As we look ahead to the second half of this decade and our 2018 commitments, this investment reflects our disciplined approach to allocating risk capital to the continued profitable growth of the Group.

 

I would also like to mention that the Company has recently entered into an agreement with First Eagle Investment Management LLC for the placement of shares to Funds and Accounts managed by First Eagle which will ensure that Fresnillo plc is compliant with changes to the Ground Rules of the FTSE UK Index Series that require constituents to maintain a minimum free float of 25% or more. We expect the placing to close tomorrow so Fresnillo's continued FTSE eligibility will be secured well ahead of the 1 January 2014 deadline. The proceeds of the placing will be used for the group's general corporate purposes.

 

I want to express my appreciation for the thoughtful participation and timely contributions of my fellow Board members, and my deepest gratitude to the people of Fresnillo for their daily efforts and demonstrated commitment to advancing the Company's strategy."

For further information, please visit our website www.fresnilloplc.com or contact:

Fresnillo plc       London Office                                    Gabriela Mayor, Head of Investor Relations	Tel: [phone]
Mexico City Office Ana Belem Zárate	Tel: [phone]
Brunswick Group Carole Cable David Litterick	Tel: [phone]

 

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