UPDATE 2-Miner Fresnillo skirts tax change with early dividend payout

Thu Oct 24, 2013 6:49am EDT

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LONDON Oct 24 (Reuters) - Mexican silver miner Fresnillo will distribute part of its 2014 dividend in November, sparing shareholders a new tax charge by handing them a $165 million payout seven months earlier than expected.

The world's largest primary silver producer said on Thursday it considered it appropriate to pay the extraordinary dividend of 22.39 cents per share ahead of schedule next month, after verifying it was well placed to fund spending on its projects.

With the early payment the group, 75-percent-owned by the Bailleres family-controlled mining company Penoles, will avoid changes to the withholding tax that Mexico levies on stockholders' dividend payments.

Shares in the company, which last made a one-off return to shareholders in 2011, climbed over 2.5 percent in early trade before paring gains to be up 1.6 percent by 1040 GMT.

Liberum analyst Kate Craig said the payment would come out of Fresnillo's full 2013 dividend, and therefore would not hit the company's cash balance at a time of peak spending.

"We'd speculate that this was related to the new tax laws due to come into effect next year, and specifically withholding tax on dividends," she added.

Distributing the payment before the end of the year could save shareholders around $16.5 million in future taxes, JP Morgan said in a note.

Fresnillo typically distributes 33 to 50 percent of earnings and trades at a premium to its peers in part because of a dividend yield that is almost double. Two-thirds of the dividend are distributed at the full year.

But it said in August its interim dividend would fall by 68 percent to 4.9 cents per share, after profits were hit by steep falls in silver and gold prices and high costs.

Thomson Reuters data puts Fresnillo's forward price/earnings ratio at 32.6 against peers at 20.9.

The company, which earns an increasing proportion of revenues from gold, has seen output of the metal impacted by a temporary ban on its use of explosives at some of its projects.

It stopped short of forecasting 2013 gold output on Thursday, however, and said it remained confident that it would be able to resume using explosives, despite a legal procedure it said was taking longer than expected.

The company had expected the ban to be lifted this week, but said the timeframe would now be early November as a result of additional hearings, at which time it said it would provide an update on its gold production guidance.

Fresnillo also on Thursday appointed Roberto Diaz as chief operating officer. He was formerly a vice president of operations at the company.

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