LONDON, March 4 Mexican precious metals mining
firm Fresnillo reported a 64 percent drop in profit on
Tuesday and said it expected silver production to be flat this
year, sending its shares down nearly 10 percent.
The company, which prides itself on having one of the lowest
production costs in the industry, said certain operational costs
including for energy and labour were likely to rise by 7 percent
this year. It vowed to offset that increase by improving
efficiency at its mines to cut $30 million in costs.
Gold and silver miners were hit by falling prices last year,
but Fresnillo also suffered from a land dispute with the local
Mexican community that led to a ban on the use of explosives and
halted mining at one of its gold mines. The ban was lifted last
Analysts at Citi wrote in a note, "2013 was a tough year for
Fresnillo, which has had to face challenges on royalties and on
legal issues, which restrained production. Nevertheless, the
results were poor even after taking those issues into account."
The analysts rated Fresnillo as over-valued and had a sell
recommendation on the stock.
The company has a price to earnings multiple of 44.13, well
above the average of its peers at 19.65, according to Thomson
Silver production is seen flat in 2014, with increased
capacity from the completion of Saucito II project offset by
lower grades at its Fresnillo mine, the company said.
The full effects of the completed Saucito II mine will be
felt in 2015, with attributable silver production rising to 45
million tonnes from 43 million, Chief Executive Octavio Alvidrez
The miner said pretax profit for 2013 was $419 million on
revenue of $1.6 billion. A Thomson Reuters I/B/E/S poll of
analysts had estimated profit before tax of $520 million on $1.6
billion in revenue.
The miner said it was on track to produce 43 million ounces
of attributable silver and 450,000 ounces of attributable gold
Fresnillo also recommended a special dividend of $50.1
million, equivalent to 6.8 cents per share.