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Top primary silver producer Fresnillo's profit down in 2022 due to challenging operational and economic environment

Kitco News

(Kitco News) - Fresnillo (LSE: FRES), the world's largest primary silver producer, announced today that in 2022, its attributable silver production of 53.7 moz (including Silverstream) was in line with guidance and slightly above 2021 (53.1 moz) with production from Juanicipio and increased volumes of ore processed at Fresnillo, offset by the lower ore grade at San Julián (DOB).

The company said that its 2022 attributable gold production of 635.9 koz was in line with guidance and down 15.3% compared to 2021 (751.2 koz), primarily due to a lower recovery rate as higher volumes of sulphide ore are processed and lower ore grade at Herradura, and a decrease in the volume of ore processed and lower ore grades at Noche Buena, Saucito and Ciénega.

On a silver equivalent basis, the company produced 104.6 moz in 2022, which is a decrease of 7.6% over 2021 (113.2 moz).

Fresnillo also reported adjusted production costs of US$1,445.8 million, up 15.2% over 2021 mainly due to cost inflation in US dollar, costs from the start-up of operations at Juanicipio and increase in the use of infrastructure contractors, maintenance, operating materials and diesel.

The company said that gross profit and EBITDA decreased to US$536.0 million and US$751.1 million, a 42.8% and 37.7% decrease over 2021, adding that profit from continuing operations of US$283.6 million was down 57.5% as a result of lower gross profit and higher exploration expenses.

Profit for the year attributable to equity shareholders of the Group was US$271.9 million, down 35.4% on 2021 mainly due to the lower profit from continuing operations.

The company also announced a final dividend of 13.3 US cents per share, amounting to US$98.0 million. This is in addition to the interim dividend of 3.40 US cents per share amounting to US$25.1 million.

"This brings the total dividend for the year to 16.7 US cents per share, in line with the Group's dividend policy," Fresnillo said.

In 2023, the company's attributable silver production is expected to be in the range of 57.0 to 64.0 moz (including Silverstream), and attributable gold production is expected to be in the range of 590 to 640 koz.

Fresnillo added that its new Juanicipio mine is now being commissioned and that the company expects to achieve grid connection of the new pyrites plant phase II in the second quarter.  

CEO Octavio Alvídrez commented, "Fresnillo delivered a resilient operating performance in 2022, with our people rising to meet a number of external challenges and deliver on our production guidance. Our financial results were impacted by industry pressures included volatile precious metal prices and higher cost inflation, while our workforce continued to feel the impact of the pandemic and caused delays to our development programme, and more specific to Mexico, the labour reform which limited the use of contractors requiring us to train new employees.

"Despite these, gold and silver production was in line with guidance and we have made solid progress on our strategy, both maximising the potential of our current mines, while also continuing to explore on our considerable growth pipeline."

Looking ahead, Alvídrez said, "We are confident in our existing operations, and excited about our growth pipeline. We are the largest silver producer in the world, have high quality assets, a consistent strategy, a very strong balance sheet, a vibrant culture, talented personnel and an experienced management team. Fresnillo's future is bright."

Fresnillo is the world's largest primary silver producer and Mexico's largest gold producer. Fresnillo has eight operating mines, all of them in Mexico, one development project - the Pyrites Plant, which has been completed and is awaiting tie-in of the plant to the national electricity grid, and four advanced exploration projects, as well as a number of other long term exploration prospects. The company has mining concessions and exploration projects in Mexico, Peru and Chile.

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