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Fresnillo shares fall after the firm forecast a drop in production

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(Kitco News) - Fresnillo has posted its latest quarterly production report this morning and there has been an improvement in gold production but a reduction in silver. They also added that quarterly attributable by-product lead and zinc production increased 18.9% and 18.1% respectively vs. 3Q20, driven primarily by higher ore grades at Saucito and Fresnillo. However, one of the main parts of the report is the forecast downgrade in gold production due to a landslide at Noche Buena

Gold production: Quarterly attributable gold production of 215.6 koz, up 24.8% vs. 3Q20, due to the higher volumes of ore processed, ore grade and recovery rate at Herradura. This followed a weaker 3Q20 due to Covid-19 operational restrictions earlier in the year which resulted in lower volumes of ore deposited at our open pits during 2Q20 and subsequently affected the recovery cycle at the leaching pads in 3Q20.

Silver production: Quarterly attributable silver production of 13.0 moz (including Silverstream), down 2.5% and 6.0% vs. 3Q20 and 4Q19 respectively, driven by a lower ore grade and volume of ore processed at Saucito, mitigated by a higher ore grade at San Julián Disseminated Ore Body (DOB).Full year attributable silver production of 53.1 moz (including Silverstream), down 2.9% vs. FY19 due to the expected lower ore grade at Saucito, mitigated by a higher ore grade at San Julián DOB and development ore from Juanicipio being processed for the first time.

The firm stated silver production is expected to be in the range of 53.5 to 59.5 moz (including Silverstream) due to the Covid-19 related impact on the timings of the Juanicipio development and delay to the start of operations of the Pyrites Plant at Fresnillo. Gold production is expected to be in the range of 675 to 725 koz mainly due to a minor land slip at Noche Buena which limited access to the deeper areas of the pit, thus changing the mining sequencing, and a lower ore grade at Ciénega.

Octavio Alvídrez, Chief Executive Officer, said: "The health and well-being of our people and our local communities has remained our priority in the last quarter. Once again I would like to thank them for their resilience and ability to adapt to the working practice changes we have made in light of the on-going impact of the pandemic. We will continue to support our local communities and the regional health authorities through education, the supply of PPE and other health initiatives.".

He added "It gives me real pride that despite the challenges, we have delivered a robust operational performance in the final quarter with both gold and silver production in line with expectations. We have also successfully progressed our development pipeline during the year. The Pyrites Plant and optimisation of the beneficiation plant, both at Fresnillo, were successfully completed in the last quarter, both on time and on budget - a remarkable achievement under the circumstances. The optimisation plant, which will improve our ability to process the higher lead and zinc content at the Fresnillo mine, is expected to start operations in February, while electrical permitting delays will push back start of the Pyrites Plant into the third quarter. Nevertheless, our high-quality team and resource base continue to give us grounds for confidence as we enter 2021".

The weekly share price chart below shows the recovery in the share price over the last year or so. Despite this upgrade in guidance the share price has still dropped 3.5% today as investors digest the reduction in the companies guidance. There is a decent support level at the current price point but we will need to see if the market can hold above this level by the time of the close in London. If the level does break then a move to the next support at 269 could be on the cards.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.