UPDATE 1-Mexico's Fresnillo says to be No. 1 silver miner

Thu Dec 23, 2010 6:54pm EST

* Fresnillo's silver, gold output to jump next year

* Mexico to surpass Peru as world's top silver producer

* Company steers clear of metals hedges (Recasts, updates with quotes, details, byline)

By Mica Rosenberg and Krista Hughes

MEXICO CITY, Dec 23 (Reuters) - Mexican miner Fresnillo says aggressive expansion plans at its local mines will vault it into first place as the world's top silver producer next year.

Mexico will push ahead of Peru in 2011 as the world's No. 1 silver producer largely due to Fresnillo's domestic growth, Chief Executive Jaime Lomelin and Chief Financial Officer Mario Arreguin told Reuters on Thursday. All of Fresnillo's operating mines are in Mexico.

As the company's Saucito development project in central Mexico comes online, Fresnillo will increase silver production to between 42 million and 43 million ounces next year, Lomelin said -- about 6 percent of global output.

Fresnillo now advertises itself as the world's largest primary silver producer because it controls more silver mines than any other company, but global miner BHP Billiton (BLT.L) produces more silver overall as a byproduct from other metals.

"Next year, Fresnillo will be the No. 1 producer of all types of silver," Lomelin said.

Encouraged by rising silver prices XAG=, which nudged up to $29.24 an ounce in late New York trade on Thursday, Fresnillo is broadening exploration at existing mines and some potential sites in Peru.

"As long as there continues to be investor appetite, silver (prices) will stay where they are or continue to rise," Arreguin said at the company's Mexico City offices.

Mexican miner Penoles (PENOLES.MX) spun off Fresnillo (FRES.L) as its precious metals unit and offered shares in London.

So far Fresnillo has shied away from hedging its production against price volatility and has no plans to change its strategy.

"Our investors don't want to hedge. They want to take on the price risk," Lomelin said. "As long as the investors don't want to," there will be no hedging, he said.

Increased capacity at the Soledad-Dipolos mine near the U.S.-Mexico border will also boost total gold production to around 400,000 ounces in 2011, he said. The company operates some mines in joint ventures in which it only owns a portion of the output.

In its third-quarter report, Fresnillo said it was on track to meet a 2010 production target of 41.1 million ounces of silver and 340,000 ounces of gold. (Editing by Steve Orlofsky)

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