Annual General Meeting Statement

RNS Number : 3250H
Fresnillo PLC
16 May 2014
 



                                                                                                        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 12pm (noon) in London, and Mr. Alberto Baillères, Chairman, will make the following statement:

"Welcome all, and thank you for coming to the Fresnillo plc annual meeting.

It will not come as a surprise to you that the changing dynamics of the precious metals industry in 2013 proved to be challenging for most mining companies. Falling metal prices, rising operating costs, lower ore grades, increased governmental and community actions had important implications for the strategy, performance and long-term viability of many in our industry.

Fresnillo plc was not immune to these pressures, yet we remain well positioned to weather cyclical challenges thanks to our long-standing value creation strategy that accounts for such shifts in market dynamics. We continued to generate solid profit margins in 2013, albeit below those of the previous year.

The Group's portfolio of mines and development projects is expected to yield profitable returns even in a low metal price environment. This reflects our long-term strategy of conservative organic growth based on a strong commitment to exploration and the development of efficient, low cost, world-class operations located in mining districts we know well.

The most significant impact on performance in 2013 was the decline in precious metal prices. Yet the Group's long experience in mining has taught us to expect, plan for and manage through such cycles.

This fall in precious metal prices over the course of the year necessitated a review of exploration and capital expenditures.

On management's recommendation, total exploration investment in 2013 was reduced by 17% from the original budget, to US$233 million, still a considerable amount compared to other companies similar to Fresnillo plc. Priority was given to projects within our current mining districts and to those with the best mineral potential. Those same strict parameters will continue in 2014, for which US$225.0 million has been allocated to exploration and early project development, in line with our growth strategy and commitment to maintaining the strongest exploration team in Mexico.

At our operating mines, further efficiencies were sought in order to offset higher unit costs for labour, refining charges, electricity and fuel, an effort that must certainly remain in place going forward.

Beyond the impact of metal prices, the mining industry in Mexico faced its own unique set of challenges in 2013, most notably the marked escalation in land access issues.

Under Mexican law, mineral rights belong to the State and only the federal government may issue concessions to explore and mine. Concession holders are required to negotiate with landowners, often agrarian cooperatives known as ejidos, to access the land on which the concessions are located. In 2013 the mining industry in Mexico saw a trend in ejidos disavowing their previously signed agreements and blocking access to mine sites.

The legal issue that arose for our subsidiary Minera Penmont, in which ownership of the surface land of the Dipolos pit and the beneficiation plant of the Soledad-Dipolos mine was contested and ultimately returned to the Ejido El Bajío, must be seen in this broader context.

The operational implications in terms of gold production in 2013 were material, having suspended all operations at Soledad-Dipolos as well as blasting activity at the larger Herradura mine nearby, due to the temporary suspension of the explosives permit it shared with Soledad-Dipolos. However, Herradura was able to continue producing although at a limited capacity as the leaching process at the pads continued until gold inventories were exhausted by the end of February 2014. The permitting matter was resolved in early 2014 and the Herradura mine became fully operational in the second week of March. We are now depositing material on the leaching pads at normal rates but because inventories were run down during the stoppage, we are currently in the process of building up gold production once more and we expect to achieve full capacity in the second half of 2014.

Fresnillo plc continued to move forward in executing its value creation strategy. Attributable silver production was above plan at 42.7 moz, compared to 41.0 moz in 2012. Gold production of 425.8 koz represented a 10.0% decline when compared to 2012, reflecting the halt of operations at Soledad-Dipolos following the aforementioned court order to vacate certain areas of the surface land, as well as the temporary suspension of the explosives permit at Herradura. The new dynamic leaching plant was concluded on plan and on budget and started operations in March 2014. This facility will increase total gold production by 50,000 ounces per year.

Two new projects are under construction: Saucito II, a silver project expected to be highly profitable, whose commissioning has been advanced by six months; and San Julián, a silver/gold project whose start-up date has been deferred for six months in light of the need to construct a water reservoir to complement underground water resources for the plant and delays now resolved, in obtaining environmental and construction permits, and the need to ensure the security of our people and assets. The diversity and quality of our portfolio allows for such flexibility in terms of adapting to changing economic and technical circumstances without affecting the Group's growth profile.

In terms of financial performance, Fresnillo plc reported adjusted revenue of US$1,761.9 million in 2013, down 23.0% from 2012, and EBITDA of US$729.8 million, 44.5% lower than in the previous year. Attributable net profit, excluding Silverstream effects, was US$298.8 million, down 61.2%. These figures reflect the decline in average realised silver and gold prices, lower gold volumes and the unproductive costs related to the suspension at Soledad-Dipolos and limited operations at Herradura. Notwithstanding, cost control measures and efficiency gains contributed to our profit margins and helped maintain our position in the lower quartile of the production cost curve.

Fresnillo paid an interim dividend of US$36.1 million on 10 September 2013 and an extraordinary dividend of US$165.0 million on 11 November 2013, which included dividend payments that shareholders may otherwise have expected to receive from dividends payable in 2014.  Fresnillo was pleased to recommend a special and one-off dividend of US$50.1 million on 4 March 2014, equivalent to 6.8 US cents per share.

This has been recommended by the Board of Fresnillo reflecting their confidence in the strength of the balance sheet and in the company's capital expenditure plans for its development and exploration projects. As a consequence the Board believes that it is appropriate to make a one-off distribution.

This distribution is incremental to Fresnillo's existing dividend policy which remains in place, and takes into account the profitability of the business and underlying growth in earnings of the Fresnillo Group, as well as its capital requirements and cash flows.

We place great value on our participation in international financial markets, not only for access to capital but also to enhance our exposure to international regulations and best practices that strengthen our business model and strategy. Thus, to comply with changes to the Rules of the FTSE UK Index Series, the Company issued new equity in 2013, representing a capital increase of 2.74% to provide a free float of 25% of the Company's shares.

Whilst the proceeds from that issuance and healthy free cash flow provided us with a strong cash balance, we saw a reason and opportunity to access the debt markets for the first time since our IPO. First, the Group has taken on medium-term capex commitments to fund its planned quality growth projects at a time when no near-term catalyst can be seen for a return to higher metal prices; second, the low interest rate environment was seen as nearing its end; third, fixed income investors still had appetite for mining debt; and fourth, the Board recognised that taking on modest debt would offer shareholders the potential for greater returns. My colleagues and I thus approved the issue of US$800.0 million of Senior Notes due in 2023.

We will continue to pursue operational excellence and the disciplined development of new projects by investing across price cycles, and I remain personally focused on ensuring the Group adheres to responsible and sustainable business practices.

It is therefore with deep regret that we suffered two fatalities during the year. We have reviewed each of these incidents as well as the actions taken by management to bolster safety policies, training procedures and supervision. Safety remains the Group's number one priority and we will continue working towards ensuring a safe workplace for our workers and contractors.

As always I am grateful to my Board colleagues for their continued insight and engagement. As you know, Lord Simon Cairns, Mr. Fernando Solana and Mr. Javier Fernández advised the board of directors that they intend to stand down from the Board following the AGM. I want to take this opportunity to thank them for their hard work and wise counsel to the Board and to the Committees on which they have served in recent years.

Finally, I would like to extend my deepest appreciation to the people of Fresnillo plc for their dedication and focus. And as we set our sights beyond the current horizon, I am confident in the capacity of the whole team and our Group to create continued value for all stakeholders.

Thank You."

 

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

Fresnillo plc      

London Office                                   

Gabriela Mayor, Head of Investor Relations

Tel: +44 (0)20 7399 2470

Mexico City Office

Ana Belem Zárate

Tel: +52 55 52 79 3206

Brunswick Group

Carole Cable

David Litterick

Tel: +44 (0)20 7404 5959

                                                                                                                                                               


This information is provided by RNS
The company news service from the London Stock Exchange
 
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