Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fresnillo PLC (FNLPF, Financial) remains the world's largest silver producer and a leading gold producer in Mexico.
- The company reported healthy cash flows and a strong balance sheet, with $690 million in cash on hand.
- Operational improvements and cost control measures have been implemented across various mines, showing positive results in some areas.
- The company is advancing several projects, including Orisyvo, Rodeo, Tajitos, and Guanajuato, which are expected to contribute to future growth.
- Fresnillo PLC (FNLPF) has increased its use of green energy sources, with 70% of its energy demand now coming from renewable sources, aiming for 75% by 2030.
Negative Points
- The company faced operational challenges in the first half of the year, including poor ground conditions and narrower-than-expected veins, impacting silver production.
- There was a significant increase in production costs, partly due to inflation and the revaluation of the Mexican peso.
- Depreciation costs increased substantially, primarily due to accelerated depreciation at the San Julián mine and the new Juanicipio mine.
- The permitting process for new projects in Mexico has become more prolonged, affecting project timelines.
- Despite efforts, the Fresnillo mine continues to face issues with high levels of dilution, impacting grades and production volumes.
Q & A Highlights
Q: The projects seem to be taking a long time. Is that because of bottlenecks within Fresnillo or broader issues in Mexico? How are you thinking about the new regime in Mexico?
A: It's both. Specific issues at each project and the current environment in Mexico contribute to delays. For example, Rodeo faced long negotiations with the community, and Orisyvo has challenging metallurgy and permitting issues. The permitting process in Mexico now takes longer, but we hope the new administration will facilitate economic growth and improve the situation.
Q: Where are we with the potential ban on open pits?
A: We continue to have an open dialogue with various stakeholders. A ban would significantly disrupt not only open-pit mining but also other industries like cement and construction materials. We believe we can make a strong case to continue open-pit mining in Mexico.
Q: Can you provide an update on the $50-million cost-saving target you mentioned six months ago?
A: In the northern district, Herradura is setting foundations for capturing savings in the second half. Cienega and San Julián have seen significant cost reductions due to improved efficiencies and contractor base reductions. In the central region, Fresnillo has seen good improvements across various cost items, and Juanicipio is capturing benefits from new operations.
Q: Fresnillo's cost per tonne was $115 in the first half, up 25% year-on-year. What is the plan to reduce this, and what should we expect for Juanicipio?
A: We are finding narrower veins, impacting volumes and costs. We are studying this and implementing measures to control costs. For Juanicipio, we will have a full year of operations this year, allowing us to provide better cost per tonne expectations for the following year.
Q: Are you seeing increased focus on safety and operational performance from regulatory bodies due to recent heap leach incidents?
A: We are very strict about geotechnical and operational controls at our heap leach operations. We don't foresee any issues given our current levels and material characteristics.
Q: Your weighted average inflation on costs is about 6.5%. Where do you expect this to trend in the second half of the year?
A: We expect a better second half in terms of cost production due to the devaluation of the Mexican peso. Stand-alone inflation has been subdued, so we might see a reduction in dollar terms.
Q: Fresnillo grades still show a massive gap between mine grade and reserve grade. Can you achieve reserve grade anytime soon?
A: We are addressing dilution issues and reviewing reconciliation models to close the gap. This is a pending issue, but we are working on it.
Q: Is M&A something you would consider to replace depletion and add growth?
A: Yes, we are exploring M&A more systematically. We have strengthened our team in this area and are also focusing on brownfield projects to address short- to medium-term production trends.
Q: You mentioned that 70% of electricity is now from renewable sources, with a target of 75% by 2030. What's the hurdle to getting to 100%?
A: The main hurdle is the administrative process in Mexico to include more operations in clean energy sources. It's more about administrative processes than production capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
