TOP NEWS: Fresnillo lifts dividend but 2021 guidance left unchanged

(Alliance News) - Mexican gold and silver miner Fresnillo PLC on Tuesday reported higher annual ...

Alliance News 2 March, 2021 | 10:14AM
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(Alliance News) - Mexican gold and silver miner Fresnillo PLC on Tuesday reported higher annual profit and earnings, allowing for a boosted dividend, but its production outlook for 2021 remains "lacklustre" according to analysts.

Fresnillo shares were up 0.5% at 907.40 pence each in London on Tuesday morning.

Pretax profit from continuing operations in 2020 rose more than tripled to USD649.7 million from USD171.7 million the year prior.

Earnings before interest, tax, depreciation and amortisation jumped 74% to USD1.17 billion from USD674.0 million, in line with market consensus.

Revenue from continuing operations increased to 15% to USD2.43 billion from USD2.12 billion. This was mainly due to better precious metal prices, according to Chief Executive Octavio Alvidrez.

"Maximising the potential of existing operations was our key strategic focus for 2020. Although there remains more to do, we are now working smarter and with greater efficiency. Our operational improvements would have been more pronounced but for the preventive measures we introduced to counter the pandemic," Alvidrez said.

Fresnillo reported attributable 2020 total silver production of 53.1 million ounces, down 2.7% from 54.6 million ounces in 2019. This includes a 3.6% drop in Silverstream production to 2.8 million ounces from 2.9 million and a 2.9% drop in other silver output to 50.3 million ounces from 51.8 million.

Attributable gold production in 2020 dropped 12% to 769,618 ounces from 875,913 ounces the year before. This was attributed to a lower volume of ore processed at Herradura as a result of Covid-19 related working restrictions and issues at Noche Buena.

Despite the miner's poor production figures, higher precious metal prices in the year carried Fresnillo to increased profit and earnings.

The average realised silver price increased 32% to USD21.3 per ounce from USD16.1 in 2019, while the average realised gold price rose 26% to USD1,792.4 per ounce from USD1,418.0.

Berenberg analysts had said before Tuesday's results that, although Fresnillo offers investors exposure to the silver price, which has risen of late, "a lacklustre operational performance" means investors should take "a cautious stance".

Fresnillo has recommended a final dividend of 23.5 US cents per share, almost doubled from 11.9 cents in 2019. This beats analyst consensus, which saw Fresnillo paying a dividend of 21 cents per share.

"This final dividend is higher than the previous year due to the higher profit in 2020, and remains in line with the group's dividend policy," Fresnillo said.

This brings Fresnillo's total annual payout to 25.8 cents per share, dwarfing the prior year's 14.5 cents and reflecting an increase of 78%, but this is still lower than 2018's 27.4 cents per share. Analyst consensus has Fresnillo increasing its dividend again in 2021 to 38 cents.

Production guidance for 2021 was left unchanged, with silver output expected to be between 53.5 million and 59.5 million ounces, including Silverstream. This means that the lowest end of the forecast would be only a 0.7% improvement from 2020.

The forecast is the result of Covid-19-related impact on timing for Fresnillo's Juanicipio development as well as a delay to start of operations for the Pyrites Plant, combined with a 20-day partial shut down at the San Julian lead circuit following minor structural damage suffered in late December.

Gold forecasts were unchanged too, seen between 675,000 and 725,000 ounces, below 2020 production by as much as 12%. This is predominantly due to the landslide at Noche Buena gold mine.

Going forward, Alvidrez said: "We remain optimistic for the outlook for precious metals prices, though we are firmly committed to our continuing efficiency, productivity and cost reduction initiatives. Given the ongoing pandemic there is a relatively high degree of unpredictability about the year ahead, so we are cautious. However, we have proven our ability to adapt to changing circumstances and longer-term, I am confident in our future and excited about the opportunities."

Commenting on the Fresnillo results on Tuesday, Peel Hunt analyst Tim Huff said: "Despite stronger sales reported for the year, Fresnillo reported FY20 Ebitda of USD1,169 million, some 9% below our USD1,279 million forecast. The weakness was mainly driven by higher costs in H2 at both Herradura and Noche Buena, due to revised operational plans."

By Greg Roxburgh; gregroxburgh@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Fresnillo PLC 894.40 GBX -1.84 -

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