Fresnillo Falls Most on Record After Cutting Production Outlook
Silver Is Soaring, But Fresnillo Is Missing Out on the Ride
(Bloomberg) -- Fresnillo Plc, a Mexican silver and gold miner controlled by billionaire Alberto Bailleres, isn’t seeing many benefits from a surge in precious metal prices.
The company is one of the few pure play silver producers, but has been dealt a blow by operational setbacks. On Tuesday, the company reported a 69% plunge in its first half profit, signaling production in 2020 may decline further following a decrease this year. The shares sank as much as 22% in London, the most since its listing in 2008.
Fresnillo has warned that 2019 will be a challenging year, pummeling the shares despite a rebound in gold and silver prices. Among the 11 companies in the FTSE 350 Mining Index, Fresnillo ranks as the worst performer with a 24% loss this year. Its parent Industrias Penoles S.A.B. de C.V., which reported results Tuesday, dropped 12% in Mexico.
In contrast, precious metals are attracting more investor attention as gold climbs on worries about the China-U.S. trade war and expectations that the Federal Reserves will lower interest rates. Silver prices are up 15% since late May.
Lower 2020 expectations come just weeks after the company’s decision to cut production guidance for 2019. While the forecasts are preliminary, Chief Executive Officer Octavio Alvidrez said he can’t rule out a slight decrease in silver production next year. He expects output will rebound in 2021.
The company’s two main silver mines, Saucito and Fresnillo, will continue facing challenges, Alvidrez told reporters on a conference call Tuesday.
For gold, output is expected to slightly decline in 2020 and 2021. Output increases at the company’s key Herradura mine won’t be able to offset a decline at the smaller Noche Buena deposit, he said.
Fresnillo is hopeful that earnings in the second half will improve given higher gold and silver prices, and cost cutting. The company received 52% of revenue from gold, about a third from silver and the rest from by-products, like zinc and lead.
To contact the reporter on this story: Elena Mazneva in London at emazneva@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin
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