Higher metals prices, ramped up production and the weak Mexican peso boost Fresnillo's profits

Courtney Goldsmith
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Fresnillo's share price has been in flux as profit rises but its boss warns of market volatility (Source: Getty)

Fresnillo's shares edged down today after the world's biggest silver producer posted a more than six-fold increase in its profit for the year, but the firm warned of volatile market conditions.

The figures

The Mexican precious metals miner reported profit of $425m (£342m) for the year to the end of December 2016 compared with $69.4m the previous year. Revenue increased 31 per cent to $1.91bn.

The firm delivered record silver production of 50.3m ounces, up seven per cent and in line with guidance, and gold production of 935,513 ounces, up 22.8 per cent and exceeding revised guidance.

The FTSE 250-listed miner's shares edged down two per cent this morning before recovering to 1.35 per cent up this afternoon.

Read more: Fresnillo hit record production of gold and silver in 2016

Why it's interesting

The company's results were boosted by higher metals prices, lower costs and the favourable effect of the devaluation of the Mexican peso, allowing Fresnillo to almost double the cash generation from its mines, said chief executive Octavio Alvidrez.

Gold prices are rising as investors flock to the safe haven asset, and spot silver just had its strongest year since 2014. At the same time, the peso has hit record lows in the wake of US President Donald Trump's shock election victory.

"This more than offset our capital expenditure and the payment of dividends, resulting in the company having a cash, cash equivalents and short-term investments balance of $912m, which increased by $412.5m from 2015 to 2016," Alvidrez said.

However, in a call with reporters today he said: "My enthusiasm for improved market conditions is somewhat tempered by their current unpredictability."

Alvidrez added despite a slight improvement in silver production in the year, the firm experienced some issues that impacted the delivery of its turnaround plan. However, after implementing additional measures, Fresnillo expects gradual production improvements in 2017.

What Fresnillo said

Alvidrez said:

For 2017, we expect further increases in production with silver reaching the 58-61 million ounces range (including Silverstream) and gold production to be between 870-900 thousand ounces. Capital expenditure is anticipated to be approximately $800m and exploration expenses $160m, including the capitalised portion.

We will continue to focus on delivering further cost reductions and productivity improvements in 2017 as well as improving our safety performance to meet our zero harm target.

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