Fresnillo sinks despite posting top gold output

MEXICAN precious metals miner Fresnillo sank on the FTSE 100 yesterday, despite reporting a relatively upbeat trading statement.

The miner, which has seven operating mines in Mexico, posted record gold output of 473,034 ounces over 2012, up 5.4 per cent year on year, thanks to a successful first year at its Noche Buena mine and a ramp-up of its Saucito operations.

However, the record annual production was at odds with output over the fourth quarter, as the gold haul sank 20.6 per cent year on year. Fresnillo cited a slow recovery at its Soledad-Dipolos mine and lower ore grades at the Herradura mine for the sudden fourth quarter drop in production.

Silver production fell two per cent over the year at 41m ounces, although it was in line with expectations. Good performance from Saucito offset a decline in silver ore grade at the Fresnillo mine.

Over 2013 as a whole, Fresnillo is targeting flat silver production, with output expected to remain stable at 41m ounces.

Gold output is expected to continue to increase – thanks to the continued ramp-up of Noche Buena – to reach 490,000 ounces this year.

The miner also reiterated its target of 65m ounces of silver and 500,000 ounces of gold annually by 2018.

In line with a ramp-up at Noche Buena and Saucito, the miner’s exploration budget will increase by 15 per cent this year to $270m (£170m), from $234m spent in 2012.

Meanwhile, to remain in the FTSE 100, Fresnillo must increase its free float to 25 per cent by the end of 2013, and yesterday it reiterated its intention to do so.

Analysts from Goldman Sachs hailed the results as “a really solid result” in a market where other precious metal miners are missing guidance. They added that Fresnillo was “progressing well” towards its 2018 output target.

Despite a positive trading statement and outlook, Fresnillo was among several precious metal miners – including sector peer Polymetal – that fell on the FTSE 100 yesterday. The Mexican miner closed down 2.82 per cent yesterday at 1,725p, making it the biggest faller on the index.