| | Published : March 01st, 2011 | 2011 Preliminary Announcement |
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2011 Preliminary
Announcement
Operational
highlights
Record attributable
silver production of 38.6 million ounces, up 1.7%
Record attributable
gold production of 368,995 ounces, up 33.4%
First year of
commercial operations at Soledad-Dipolos exceeded production budget
Ci nega expansion
and Saucito development on track for start up in 1H 2011
Pre-feasibility study
at the Noche Buena gold project concluded, construction commencing in Q1 2011
Discovery of new ore
shoot at Saucito, adding over 76 million ounces of silver and 300,000 ounces of
gold to resources
Positive drilling
results obtained at several exploration projects and prospects
Total resources base
increased by over 15%, with reserves replenished at existing
mines
On track to produce
65 million ounces of silver and over 400,000 ounces of gold annually by 2018
Financial highlights
Adjusted revenue[1] up 56.1% to
US$1,473.9 million
EBITDA[2] up 90.3% to US$945.0 million
EBITDA margin
increases to 67.0%, from 58.4% in 2009
Cost controls and
efficiency measures enabled Fresnillo to remain in the lowest quartile of
the cost curve
Operating profit[3] up 94.4% to
US$833.4 million
Profit attributable
to equity shareholders of the Company, excluding the Silverstream revaluation
effects up 72.3% to US$530.8 million (post Silverstream
revaluation up 106.6% to US$665.5 million)
Adjusted EPS[4] up 72.1% to
US$0.740 per share, EPS up 106.5% to US$0.927 per share
Final dividend of
35.6 US cents per ordinary share
Robust balance sheet
with no debt and a strong cash position up 79.2% to US$559.5 million
Highlights for 2010
$ million unless stated
|
2010
|
2009
|
% change
|
Silver Production* (kOz)
|
38,571
|
37,916
|
1.7
|
Gold Production* (Oz)
|
368,995
|
276,584
|
33.4
|
Total Revenue
|
1,409.6
|
849.9
|
65.8
|
Adjusted Revenue**
|
1,473.9
|
944.0
|
56.1
|
Gross Profit
|
974.5
|
528.3
|
84.4
|
EBITDA
|
945.0
|
496.6
|
90.3
|
Profit Before Income Tax
|
1,022.4
|
457.4
|
123.5
|
Attributable Profit
|
665.1
|
322.0
|
106.6
|
Basic
and Diluted EPS (USD)***
|
0.927
|
0.449
|
106.5
|
* Fresnillo
attributable production
**
Adjusted Revenue is revenue as disclosed in the income statement
adjusted to exclude hedging effects and treatment and refining charges
*** The weighted average number of shares for 2010 was
717,160,159.
Chief executive
Jaime Lomelin said: "2010 was a year of exceptional
performance. The combination of increased production, strong cost control and
high metals prices led 2010 to be the best year in the company's history. While
continued market volatility and uncertainty regarding the pace of the economic
recovery will undoubtedly offer challenges in 2011, I am confident that
our focus on increasing productivity, containing costs, expanding the resource
and reserve base, and strengthening our growth pipeline will create ongoing and
sustainable value to all our stakeholders."
Analyst
Presentation
Fresnillo
plc will be hosting a presentation for analysts and investors today at 09.00
(GMT) at JP Morgan Cazenove at Level 6, Board Room, 20 Moorgate London EC2R
6DA.
For
those unable to attend the presentation, dial-in details are set out below:
Dial
in
number:
+44 (0) 1452 541 076
Access
Code: 42460392
For further
information, please visit our website: www.fresnilloplc.com or contact:
Fresnillo plc
|
|
London
Arturo Espinola
Head of
Investor Relations
|
Tel: +44(0)20 7339 2470
|
Mexico
Gabriela Mayor
|
Tel: +52 55 52 79 3203
|
Brunswick
Group
Carole Cable
(Partner)
David Litterick (Director)
|
Tel: +44(0)20 7404 5959
|
About Fresnillo plc
Fresnillo plc is
the world's largest primary silver producer and Mexico's second largest gold
producer, listed on the London and MexicanStock Exchanges under the symbol
FRES.
Fresnillo has
four producing mines, all of them in Mexico - Fresnillo, Ci nega, Herradura and
Soledad-Dipolos; two development projects - Saucito and Noche Buena; and six
advanced exploration prospects - San Ramon, San Juli n, Orysivo, Centauro Deep,
Las Casas and Juanicipio as well as a number of other long term exploration
prospects and, in total, has mining concessions covering approximately 1.91
million hectares in Mexico.
Fresnillo has a
strong and long tradition of mining, a proven track record of mining
development and reserves replacement, and a low cost of production, being in
the lowest quartile of the cost curve for both silver and gold.
Fresnillo's goal
is to maintain the Group's position as the world's largest primary silver
company, producing 65 million ounces of silver and over 400,000 ounces of gold
by 2018.
Dear
Shareholders,
I am pleased to
report a year of solid performance for Fresnillo plc. Record levels of silver
and gold production, the start-up of a new mine, and substantial progress at
development and exploration sites attest to the Group's operational execution
and robust resource base. Combined with high silver and gold prices, Fresnillo
plc delivered the best year in its history.
This performance
comes in the context of a complex global economic recovery, ongoing market
volatility, debt crisis in Europe, large fiscal deficits in several developed
countries, loose monetary policy in the USA and the continued ascendancy of
China, factors that contributed to the exceptional rise in precious metal
prices.
Notwithstanding
the important benefit of favourable prices, the Group s production and cost
profile, growth platform and mining expertise contributed to the positive
performance. With an average cash cost of US$3.3 per ounce of silver and
US$309.1 per ounce of gold, the Fresnillo Group should be able to produce
profitably well below current prices, and do so for years to come given the
1.47 billion silver ounces and 20.08 million gold ounces in resources.
Furthermore, Fresnillo plc has the know-how to identify high potential
resources and develop them economically, establishing a good pipeline for
growth.
As such, I
believe we are on course to meet the ambitious target set out at the time of
our initial public offering in 2008: that by 2018, Fresnillo plc will be able
to produce 65 million ounces of silver and over 400,000 ounces of gold
annually. Furthermore, the Group should be in a position to maintain that level
of production for the subsequent 10 years at least, based on our
project delivery schedule.
Investing across
metal price cycles to extend the growth pipeline will continue to be a hallmark
of our value-creation strategy. We also seek to deliver growth through
development projects and maximise the potential of existing operations.
Underlying this strategy are two fundamental pillars:
prudent financial discipline to ensure
sufficient investment capital even under unfavourable price scenarios; and most
importantly,
a profound and unwavering commitment to
long-term sustainable development.
The Fresnillo
Board regards the Group's performance in health, safety, environmental and
community issues as integral to its operational performance. This year we
engaged in discussions about the strategic framework for corporate social
responsibility, the impact of the Group's social investments, and broader
industry benchmarks in this regard. Our focus remains squarely on prioritising
the health and safety of employees above all else, minimising the Group's
environmental impact, and engaging constructively with communities to create
lasting economic and social value.
It is thus with
great sadness that I report the death of two employees this year. We hold
ourselves to the highest standard in which no fatality is ever acceptable.
Additional training and monitoring across the organisation are being
implemented to enforce adherence to safety measures.
Furthermore, and
as part of the Company's adoption of the Principles of the UK Corporate
Governance Code, the Board has initiated a process to explicitly define the
nature and extent of the risks we are willing to take to achieve our strategic
objectives. We believe the Company already has a comprehensive approach to
managing risks, and this process will enhance our framework and ensure full
alignment of Board- and executive-level practices.
Like all of my
board colleagues, I am firmly committed to ensuring that we collectively
oversee Fresnillo plc with transparency and in the interest of all
shareholders. We are fully committed to the best possible practices in
corporate governance, and take our adherence to the principles and provisions
of the new UK Code on Corporate Governance very seriously. In particular we
recognise that the shareholding structure of Fresnillo plc requires us to
ensure, as we have done, that the interests of all shareholders are well
represented in the proceedings of the Board. In our reporting this year, we
have sought to demonstrate the steps put in place to achieve this.
Based on the
Group's 2010 performance, the Directors have recommended a final dividend of
35.6 US cents per Ordinary Share, which will be paid on 20 May 2011 to
shareholders on the register on 3 May 2011. The dividend will be paid in UK
pounds sterling unless shareholders elect to be paid in US dollars. The Company
s dividend policy takes into account the profitability of the business and
underlying growth in earnings of the Company, as well as its capital
requirements and cashflows, whilst maintaining an appropriate level of dividend
cover.
For 2011, despite
the uncertain outlook for economic and metal price performance, we expect that
our high quality resource base and low-cost production profile will enable
Fresnillo plc to deliver growth. Silver and gold production volumes will
reflect the start-up of commercial operations at Saucito, a significant
property with 361.5 million ounces of silver resources. Gold production will
benefit from expanded milling capacity at Ci nega and the expansion of
Soledad-Dipolos.
The Board has
authorised a 151.1% increase in the 2011 exploration budget, to US$251.4
million. The favourable exploration results obtained in 2010, including
significant new resources identified at existing projects that will warrant
mine expansion in the near term, reinforce our confidence that such
expenditures are vital to the long-term growth of the Group. The focus will
remain on consolidating mining districts in Mexico and Peru.
I would like to
thank my fellow Board members for their service and contributions in the year.
It is a pleasure to work together towards a common mission, and Fresnillo plc
benefits from the wealth of experience and perspectives that our outstanding
Board members bring. I would also like to commend the Group's executives and
employees for delivering great performance that affirms Fresnillo plc's
leadership position in primary silver and our growing profile in gold.
Alberto Baill res
Non-executive
Chairman
Dear
Shareholders,
I am pleased to
report a year of exceptional performance. Silver and gold production reached
record levels; Soledad-Dipolos started operations as our fourth operating mine
and contributed importantly to the results; significant progress was made at
the Saucito development project, and the Ci nega and Soledad-Dipolos expansions
are on track; and exploration efforts increased mineralisation at all major
prospects and led to a substantial increase in the total resource base.
Our operational
performance was enhanced by the considerable increase in metal prices over the
period, which enabled us to deliver record financial results to Fresnillo
shareholders. We begin 2011 with a robust operational profile, extensive
growth pipeline, strong cash position and zero debt.
A
sterling performance
Total
attributable silver production slightly exceeded our forecasts, rising 1.7%
over 2009 to 38.6 million ounces. This reflected stable production at
Fresnillo, higher ore throughput from development works at Saucito, and higher
ore grades and ore deposited at Herradura. In addition, we accrued 3.4 million
ounces of silver under the Silverstream Contract, slightly above with the
amount received in 2009.
Attributable gold
production increased by 33.4% to a record 368,995 ounces with the start of
commercial production at Soledad-Dipolos in January, as well as greater volumes
deposited at Herradura and ore milled at Ci nega.
The Group's
precious metals production profile consolidates our global leadership position
in primary silver and highlights the growing importance of gold in our
portfolio.
Production of
zinc and lead, which are by-products of the Group's operations at Fresnillo and
Ci nega, increased by 15.1% and 9.9% respectively, mainly as a result of higher
volumes of ore milled and better ore grades.
Our Group, along
with much of the precious metals industry, benefited from the rise in prices
this year. Continued uncertainty about the global economic recovery, market
volatility and weakness of the US dollar contributed to sustained investor
interest in gold, while higher silver prices reflected both investor interest
and recovering demand for silver as an industrial metal. Average realised gold
and silver prices for the Group increased by 26.6% and 40.0% respectively,
helping drive the significant growth in earnings.
Adjusted
revenues, which exclude treatment and refining charges and hedging results,
rose 56.1% in the year. Total revenues increased to US$1,409.6 million, 65.8%
higher than at 31 December 2009. EBITDA rose to US$945.0 million, with a
significant increase in the EBITDA margin from 58.4% in 2009 to 67.0% in 2010.
Net profit attributable to shareholders, prior to Silverstream revaluation
effects, was US$530.8 million, 72.3% higher than in 2009.
There were a
number of variables that led to an increase in production costs this year,
including the revaluation effect of the Mexican peso-US dollar exchange rate
and higher electricity and diesel prices. Further contributing to the rise in
production costs were increased mine development and rock bolting and
shotcreting activities to enhance safety.
Nonetheless,
higher volumes, strict cost controls, ongoing efficiency efforts and higher
by-product credits resulted in lower cash costs and enabled us to remain in the
lowest quartile of the cost curve relative to our peers. Our low cost
production profile is a key competitive advantage because it provides downside
protection in a cyclical environment.
Fresnillo plc
carries no bank debt, and as of 31 December 2010 had a cash position of
US$559.5 million, 79.2% above the 2009 figure. Our policy is to invest in the
future growth of the business. Capital expenditures totalled US$340.3 million
in 2010, and total exploration investment, including capitalised expenses was
US$100.1 million.
An
exceptional growth profile
These results are
the outcome of a strategy designed to create value across precious metals
cycles: a focus both on operational excellence in maximising current assets,
and on delivering long-term growth through reserve replacement and expansion
into new projects.
While we consider
ourselves conservative in that we maintain strict and consistent investment
parameters, we have a broad portfolio of high quality exploration projects and
prospects. Our strategy is to consolidate mining districts with world-class
potential, and prospects must meet our tonnage, ore grade and low-cost
extraction criteria. We advance projects towards start-up through a disciplined
development process.
Results from exploration
activities in 2010 were very encouraging. We undertook an extensive drilling
programme employing 75 exploration rigs at our mines, advanced projects and
prospects. Total attributable resources rose from 1.3 billion ounces of silver
at 31 December 2009 to 1.5 billion ounces, and 13.9 million ounces of gold to
20.1 million ounces.
Of particular
note is the discovery of a new ore shoot at Saucito that added over 76 million
ounces of silver and 300,000 ounces of gold to resources. Resources at Orisyvo
rose significantly. At Noche Buena, we confirmed the resource estimate,
completed the pre-feasibility study and secured all land requirements to
initiate construction of a new mine in 2011. Scoping studies were completed at
San Juli n and Orisyvo, as was the pre-feasibility study at Juanicipio in
January 2011.
The Group
maintains the largest land position for precious metals exploration and mining
in Mexico and we continued to acquire surface rights in 2010. We signed
exploration option agreements to explore the gold properties Candame a in Chihuahua, and Cebadillas and Yesca in Nayarit, with
drilling planned for 2011. We are also expanding our district exploration
efforts in Guerrero, Durango, Guanajuato and Zacatecas, as well as in Peru,
where we acquired concessions this year.
We are on track
to meet our goal of producing 65 million ounces of silver per year and over
400,000 ounces of gold per year by 2018.
By mid-2011, the
expanded capacity at Ci nega is expected to become operational, which will stabilise
gold production at 110,000 ounces per year and maintain mine life at over 10
years. By the end of 2011, we expect to commission the shaft, giving us
access to deeper ore reserves and reduce costs.
We are also on
track in expanding capacity at Soledad-Dipolos from 100,000 ounces of gold per
year to 130,000 by increasing the number of leaching pads and mobile equipment
at the mine.
The new
world-class Saucito mine is also on track to start commercial operations in 1H
2011. First year production levels are expected to reach 4.7 million ounces of
silver and 22,500 ounces of gold, then ramping up to more than 9.0 million
ounces of silver and 45,000 ounces of gold per year by 2013. In 2010, we
advanced the development of the mine and construction of the beneficiation
plant. During the year 1.2 million ounces of silver and 6,323 ounces of
gold were obtained from the development works at Saucito, which were processed
at the Fresnillo mill. In addition, 91,043 tonnes of ore from Saucito were stockpiled
in preparation for the commissioning of the Saucito mill.
Renewed
focus on safety
While we are
proud of our operational and financial success this year, I regret to report we
have not performed as well on safety. We suffered two fatalities in 2010 as a
result of failure to follow company safety procedures. We have a responsibility
to improve our employees' and contractors' decision-making capabilities when it
comes to workplace safety, and as such we are reinforcing the rigorous
procedures and programmes already in place with supplemental training and spot
drills, and have enhanced the monitoring procedures across the Group to ensure
that our policies are adhered to. A zero fatality tolerance is the only
acceptable standard, and I am joined by the Board and management team in
extending our deep condolences to the families and colleagues.
Sustainable
development
Our business
model is dependent upon sound environmental management practices and community
and labour relations. Sustainable development is thus deeply integrated into
every aspect of our operations.
Along with ISO
14001 certifications at all mines and exploration offices, we are signatories
to the International Cyanide Management Code. Herradura completed the audit
process to obtain certification in 2010, and the process is underway at Ci nega,
where we expect to obtain certification in 2011. Soledad-Dipolos will begin the
process in the coming year.
Employees
received a greater number of training hours on average in 2010, and we
continued to invest in a range of professional development initiatives and
workplace enhancements, including housing and recreational facilities. Annual
labour negotiations concluded with the agreement of a 6.5% wage increase and a
1% bonus on base salary.
Our community
relations were strengthened this year with the first full year of operations at
the sewage water treatment plant at Fresnillo. In a region of water scarcity,
the plant has contributed to preserving aquifers and reducing a potential
source of contamination for the city, while lowering our production costs and
fresh water consumption. At Ci nega we worked with the municipality to pave the
main streets of the town, improving the community's transportation and air
quality. We are pleased that our development projects are promoting job
creation in the Herradura and Fresnillo districts, as we have a preference to
utilise the services and products of local contractors and vendors. In every
community where we operate we continued to actively participate in education,
healthcare and infrastructure projects.
Outlook
Continued market
volatility and uncertainty regarding the pace of the economic recovery will
undoubtedly be reflected in metal prices.. I am
confident that our focus on increasing productivity, containing costs,
expanding the resource and reserve base, and strengthening our growth pipeline
will create ongoing and sustainable value to all our stakeholders.
Looking ahead at
2011, we expect:
Improved safety performance
Commissioning of Saucito
Commissioning of expanded milling
capacity and deeper shaft at Ci nega
Completion of Soledad-Dipolos
expansion
Construction at Noche Buena under
way
Pre-feasibility study at San Juli n
Determination of next steps for
development of Juanicipio
Silver production to rise 5%
Gold production to rise 5-6%
Exploration budget to increase to
US$251.4 million
On behalf of the
Company's personnel and the management team, I would like to extend my
appreciation to our Chairman and members of the Board for their valuable
support and guidance during 2010. I would also like to thank my fellow
executives and employees for their enduring commitment to quality and
sustainable growth.
Jaime Lomel n
Chief Executive
Officer
Commentary on
financial performance
In 2010, the
Fresnillo Group generated strong financial results driven by the rally in
precious metal prices, the contribution of Soledad-Dipolos and the robust
operational performance of the Group mines. These were somewhat mitigated by i)
higher exploration expenses and by higher depreciation expense resulting from
recent capital investments, both in support of the Group's organic growth
strategy; and ii) higher adjusted production costs reflecting a stronger peso,
rising electricity and diesel prices and an increase in activities to ensure
continuous operations, as well as higher taxes and profit sharing. As a result,
attributable profit in the year, excluding the effect
of the Silverstream revaluation rose 72.3% from US$308.0 million in 2009 to
US$530.8 million in 2010.
Income Statement
Key items of the
Income Statement are shown below:
INCOME STATEMENT KEY ITEMS
|
(US$ millions)
|
|
2010
|
2009
|
% Change
|
Revenues
|
1,409.55
|
849.94
|
65.8
|
Cost of sales
|
(435.08)
|
(321.63)
|
35.3
|
Gross profit
|
974.48
|
528.31
|
84.4
|
Exploration expenses
|
82.11
|
49.06
|
67.4
|
EBITDA
|
945.00
|
496.62
|
90.3
|
Profit before income tax
|
1,022.37
|
457.42
|
123.5
|
Income tax expense
|
272.97
|
99.15
|
175.3
|
Profit for the year
|
749.40
|
358.27
|
109.2
|
Profit
for the year, excluding post-tax Silverstream revaluation effects
|
615.11
|
344.30
|
78.7
|
Attributable profit
|
665.13
|
322.01
|
106.6
|
Attributable
profit, excluding post-tax Silverstream revaluation effects
|
530.84
|
308.04
|
72.3
|
Basic
and diluted earnings per share (US$/share) 1
|
0.927
|
0.449
|
106.5
|
Basic
and diluted earnings per share excluding post-tax Silverstream
revaluation effects (US$/share)
|
0.740
|
0.430
|
72.1
|
1 The weighted average number of ordinary shares for 2010 and 2009 was
717,160,159.
Fresnillo plc's
financial performance is determined by the level of efficiency in executing the
Group's strategy and the impact of several external factors. The quality of our
asset base, the ability to maximise its potential, and personnel and
management's skills are among the most important internal drivers underlying
our financial results. The external variables with material impact on Group
performance are dependent on market conditions and are thus outside of
Fresnillo plc's control. These include:
Precious metal
prices
Volatility in the
global economy and the sovereign debt crisis in Europe fostered safe-haven
investment demand, resulting in gold and silver prices reaching record levels.
In 2010 the average realised price of silver increased 40.0% to US$21.39 per
ounce, while the average gold price reached US$1,252.05 per ounce, a 26.6%
increase year-over-year. The Group's Income Statement is considerably impacted
by these variables, as 95% of our revenues come from these metals. In addition,
the strengthening of forward silver prices in 2010 significantly impacted the
valuation of the Silverstream contract, considered to be a derivative
instrument under IFRS, which resulted in an unrealised pre-tax gain of US$191.8
million recognised in the income statement. Expectations of future silver price
is one of the key assumptions underlying the valuation of this contract and
analysis of the impact on the contract's value of changes in the price of
silver is provided in Note 11 to the Financial Statements. We maintain a policy
not to hedge silver and gold price exposure and therefore provide shareholders
with full exposure to fluctuations in silver and gold prices.
Foreign exchange
rates
The average spot
exchange rate of the Mexican peso to the US dollar was revalued from MXN13.52
per US dollar in 2009 to MXN12.64 per US dollar in 2010. This variable had an
adverse effect on the Group's production costs, as costs denominated in Mexican
pesos (approximately 70% of total costs) increased when converted to US
dollars. The negative impact of the 6.5% average revaluation within the costs
was estimated at US$9.5 million.
The spot exchange
rate at 31 December 2010 was MXN12.36 per US dollar, representing a 5.4%
revaluation when compared to the MXN13.06 per US dollar at the beginning of the
year. The Group's taxable profits are determined under Mexican GAAP in
pesos and this revaluation had an adverse effect on the peso value of US
dollar-denominated net monetary asset position, with the Silverstream Contract
and cash and cash equivalents being the most important. As a result, a foreign
exchange loss under Mexican GAAP was generated, lowering the Group's taxable
profits.
Inflation of key operating materials
|
Year over year change
|
Steel for drilling
|
(0.1%)
|
Explosives
|
4.8%
|
Tyres
|
(1.3%)
|
Sodium cyanide
|
(24.4%)
|
Other reagents
|
11.3%
|
Oils and other lubricants
|
10.4%
|
Weighted Average
|
1.9%
|
The net increase
in the weighted average input cost over the year was 1.9%. The average unit
price of several operating materials fluctuated in 2010, reflecting prevailing
economic conditions. Reagents such as zinc and copper sulphates increased
significantly over the course of the year reflecting the higher prices of those
metals. Average prices for sodium cyanide however, an important reagent used in
the gold leaching process, declined.
Further increases
in the unit prices of all inputs are expected for 2011, reflecting the increase
in demand to support expansion plans within the broader mining industry.
Electricity
Fresnillo plc's
weighted average cost of electricity increased by 24.6% when compared to 2009.
This followed the
expected rate increase from the Comisi n Federal de Electricidad (CFE), the
national utility, with recovering economic conditions prompting the Mexican
government to reverse its policy of reducing electricity prices to control
inflation. The unit price of electricity for 2011 is expected to move in
line with CFE's average generating cost.
Diesel
The weighted
average cost of diesel in Mexican pesos increased by 19.6% year-on year
reflecting the Mexican government's decision to align fuel and diesel prices
with international rates. In accordance with this policy, a similar increase is
anticipated for 2011.
Treatment and
refining charges
Treatment and
refining charges (TRCs), which are deducted from adjusted revenues for the
purposes of revenues as disclosed in the income statement, are reviewed
annually in accordance with international benchmarks. The treatment charge per
tonne of lead concentrate, including the escalator, remained steady, while
treatment charge per tonne of zinc concentrate increased by 3.2% when compared
to 2009. However, this increase was completely offset by a 29.7% decrease in
the refining charge per ounce of silver, which represented 42% of total
treatment and refining charges. As a result, total TRC charges decreased by
6.9% year-on-year, despite the increase in volumes of product sold.
The effects of
the internal and external factors impacting each of the items of the Income
Statement are further described below.
Revenues
CONSOLIDATED REVENUES
(US$ millions)
|
|
|
Change
|
|
2010
|
2009
|
Amount
|
%
|
Adjusted revenue 2
|
1,473.92
|
943.96
|
529.96
|
56.1
|
Treatment and refining charges
|
(64.37)
|
(69.23)
|
4.86
|
(7.0)
|
Hedging losses (Pre-IPO) 3
|
|
(25.02)
|
25.02
|
(100)
|
Hedging gains
|
|
0.23
|
(0.23)
|
(100)
|
Revenues
|
1,409.55
|
849.94
|
559.61
|
65.8
|
2 Adjusted Revenue is revenue as disclosed in the income statement
adjusted to exclude hedging effects and treatment and refining charges.
3 Derivatives terminated prior to the IPO in 2008.
Total revenues
for the full year rose to a record US$1,409..5 million,
a 65.8% increase when compared to 2009. The main contributor to this
significant increase was adjusted revenue which rose 56.1% to US$1,473.9
million. Higher average realised metal prices accounted for 65.6% of the total
US$530.0 million increase in adjusted revenues. The remaining 34.4% of the
favourable effect reflected the additional volumes of gold ounces sold from
Soledad-Dipolos, Ci nega and Herradura.
Hedging
The Fresnillo
Group has not entered into any silver and gold hedging contracts since its
Initial Public Offering (IPO) in 2008 and does not intend to do so, thus
providing full exposure to fluctuations in silver and gold prices. In 2010,
Fresnillo plc did not enter any new derivative contracts to hedge the price of
lead and zinc by-products.
However, prior to
the IPO, the Group used derivatives to reduce commodity price risks arising
from the volatility of silver and gold prices. In 2009, a final non-cash charge
of US$25.0 million was reflected against adjusted revenues as a result of the
hedging instruments that were terminated in 2007, but for which cumulative
losses were recycled to the income statement at the time of the occurrence of
the hedge transaction to which they related.
ADJUSTED
REVENUES4 BY METAL
(Year
ended 31 December, US$ millions)
|
2010
|
|
2009
|
|
Volume Variance
|
Price Variance
|
Total
|
%
|
Silver
|
746.18
|
51%
|
529.63
|
56%
|
3.6
|
212.9
|
216.5
|
40.9
|
Gold
|
653.29
|
44%
|
359.17
|
38%
|
171.2
|
122.9
|
294.1
|
81.9
|
Lead
|
34.38
|
2%
|
26.98
|
3%
|
2.9
|
4.5
|
7.4
|
27.4
|
Zinc
|
40.07
|
3%
|
28.18
|
3%
|
4.7
|
7.2
|
11.9
|
42.2
|
Total Adjusted Revenues
|
1,473.92
|
100%
|
943.96
|
100%
|
182.4
|
347.5
|
529.96
|
56.1
|
4Adjusted revenue is
revenue as disclosed in the Income Statement adjusted to exclude hedging
effects and treatment and refining charges.
Gold share of
total adjusted revenues increased from 38% in 2009 to 44% in 2010 as a result
of the start-up of commercial production at Soledad-Dipolos. Silver share thus
declined to 51% in 2010.
VOLUMES
OF METAL SOLD
(Year
ended 31 December)
|
2010
|
2009
|
% Change
|
Silver (koz)
|
34,883
|
34,676
|
0.6
|
Gold (oz)
|
521,780
|
363,205
|
43.7
|
Lead (mt)
|
16,057
|
14,565
|
10.2
|
Zinc (mt)
|
18,634
|
16,134
|
15.5
|
Cost of sales
|
|
|
Change
|
|
2010
|
2009
|
Amount
|
%
|
Adjusted production cost5
|
311.97
|
209.80
|
102.17
|
48.7
|
Depreciation
|
105.22
|
67.23
|
37.99
|
56.5
|
Change
in work in progress
|
(16.77)
|
12.94
|
(29.71)
|
N/A
|
Profit sharing
|
37.68
|
24.58
|
13.10
|
53.3
|
Hedging (of exchange rate)
|
(3.02)
|
7.08
|
(10.10)
|
N/A
|
Cost of sales
|
435.08
|
321.63
|
113.45
|
35.3
|
5Calculated as total production costs less depreciation, profit sharing
and exchange rate hedging effects.
The main factors
affecting the increase in cost of sales were:
Adjusted production costs increased
to US$312.0 million, a 48.7% increase when compared to 2009. Of the US$102.2
increase, US$55.1 million, or 53.9%, related to production costs incurred at
the new Soledad-Dipolos mine in its first year of commercial production. In
addition the revaluation of the average spot exchange rate resulted in a US$9.5
million adverse effect when converting peso-denominated costs to US dollars.
The discussion below factors out the impact of foreign exchange movements in
the peso denominated costs for each category in order to reflect the underlying
operational unit cost changes:
Contractor
costs rose by US$12.7 million as a result of i) stripping cost of the Valles
pit recorded in the income statement, while in 2009 these costs were
capitalised ii) the increase in development works to ensure continuous
operations; iii) shotcreting and rock bolting activities carried out mainly at
the Fresnillo mine to secure personnel safety; iv) increased mine services
which are typically conducted by contractors such as road maintenance and
pumping; v) additional volumes of ore and waste material hauled over longer
distances at all our mines; and vi) higher unit fees charged by contractors,
which include the annual rise in labour costs, depreciation of the contractors'
equipment, operating materials and fuel and lubricants.
The cost
of energy rose by US$10.7 million as a result of increases in electricity and
diesel prices of 24.7% and 19.6% respectively. Additional consumption of energy
was associated mainly with higher production volumes at our mines, and to a
lesser extent, to the longer haulage distances affecting consumption of diesel.
Operating
materials increased by US$6.0 million due to increased consumption of
explosives, anchors, steel and lubricants related to the additional volumes of
ore produced at the mines. These increases were mitigated by operating
efficiencies achieved through the Six Sigma methodology and other cost control
initiatives..
The cost
of personnel increased by US$2.4 million as a result of i) additional personnel
hired at Herradura; ii) a 6.5% increase in wages plus a 1% bonus in base
salary; iii) bonuses associated with the implementation of efficiency projects;
and iv) training to improve safety indices.
The cost
of maintenance rose by US$2.3 million due to i) maintenance and repair of
locomotives at the Fresnillo mine; and ii) intensified use of equipment to load
and haul ore and waste at the mines.
Other
costs increased by US$3.5 million as a result of additional equipment insured,
surveillance, freight and IT expenses.
Depreciation increased by US$38.0
million mainly due to the larger asset base following the completion of
Soledad-Dipolos, higher production volumes which affected the depletion factor,
and the purchase of additional high-capacity trucks and loaders.
The current year increase in work in
progress as compared to the decrease in 2009 benefited the movement in COS by
US$29.7 million. In 2010, ore deposited at Soledad-Dipolos increased
inventories of ore at this mine, while in 2009 a charge of US$12.9 million was
recognised as a result of the decrease of mineral and concentrate inventories
at Herradura.
Profit sharing rose by US$13.1
million due to higher profits at our operating mines.
The Fresnillo Group enters into
certain exchange rate derivative instruments as part of a programme to mitigate
its exposure to foreign exchange risk associated with costs incurred in Mexican
pesos. The forward sales position that matured throughout 2010 was for US$77.5
million at an average rate of MXN13.17 per US dollar. Forward contracts which
matured throughout the year resulted in a US$2.9 million gain recognised in the
income statement. The outstanding net forward position as of 31 December 2010
was US$51.0 million with maturity dates throughout 2011.
Additionally, the
Group entered into a combination of put and call options structured at zero
cost (collars). During the year, collars hedging US$14.5 million of costs
denominated in Mexican pesos matured. Resulting in a US$0.2 million gain
recognised in the income statement. Collars hedging costs denominated in
Mexican pesos equivalent to US$36.0 million will mature in 2011 with an average
floor exchange rate of MXN13.03 per US dollar and cap of MXN14.23 per US
dollar. These instruments guarantee a minimum exchange rate should the market
fall below the floor exchange rate. Between the floor and cap exchange rates
the Group sells US dollars at the market rate, and when the Mexican peso per US
dollar exchange rate goes above the cap rate, the Company is obliged to sell US
dollars at the contract rate.
Cost per tonne
and cash cost per ounce
Cost per tonne
milled across our operating mines increased when compared to 2009 as shown in
the table below.
COST
PER TONNE6
(Year
ended 31 December)
|
|
|
|
%
|
|
|
2010
|
2009
|
Change
|
Fresnillo
|
US$/tonne milled
|
41.73
|
37.24
|
12.0%
|
Ci nega
|
US$/tonne milled
|
65.86
|
61.45
|
7.2%
|
Herradura
|
US$/tonne deposited
|
5.64
|
5.17
|
9.1%
|
Soledad-Dipolos
|
US$/tonne deposited
|
5.71
|
N/A
|
N/A
|
6 This indicator is calculated as total production costs less
depreciation, profit sharing and exchange rate hedging effects. In 2010
however, freight costs associated with ore transported from Fresnillo plc's
mines to Met-Mex facilities, which are usually presented as a deduction to
Adjusted Revenues, were reclassified and added to the cost of freight of inputs
under production cost, thus illustrating the full impact of freight costs.
Cost
per tonne figures presented within the 2009 Annual Report excluded freight
charges against revenues, thus those figures are shown with a pro forma
reclassification in order to be comparable with 2010 calculations.
CASH
COST PER OUNCE7
(Year
ended 31 December)
|
|
|
|
%
|
|
|
2010
|
2009
|
Change
|
Fresnillo
|
US$ per silver ounce
|
3.34
|
3.37
|
(0.8%)
|
Ci nega
|
US$ per gold ounce
|
193.86
|
190.61
|
1.7%
|
Herradura
|
US$ per gold ounce
|
323.83
|
342.90
|
(5.5%)
|
Soledad-Dipolos
|
US$ per gold ounce
|
383.15
|
N/A
|
N/A
|
7Cash cost per ounce
is calculated as total cash cost (cost of sales plus treatment and refining
charges less depreciation) less revenues from by-products divided by the silver
or gold ounces sold.
Cash cost per
silver ounce at Fresnillo reflected a modest decrease (see table below) due to
higher gold, lead and zinc by-product revenues (resulting from increased sales
volumes and higher metal prices). In addition, the slight increase in volumes
of silver produced and sold also mitigated the adverse effect of the higher
adjusted production costs.
Cash cost per
gold ounce at Ci nega slightly increased reflecting the higher adjusted
production costs associated with the development works at the mine and the
24.6% decrease in silver by-product production, partially offset by the higher
zinc and lead by-product sales and the increased gold ounces sold.
Cash cost per
ounce at Herradura decreased by 5.5% as a result of the higher gold ounces
produced and sold at this open pit mine. Cash cost per gold ounce at
Soledad-Dipolos was US$383.15, higher than Herradura's cash cost due to the
natural lower ore grade impacting total gold ounces sold.
Gross profit
Gross profit,
before hedging gains and losses, is an important financial indicator to measure
the profitability at each mine and at the Fresnillo Group as a whole.
CONTRIBUTION
BY MINE TO THE GROUP'S GROSS PROFIT EXCLUDING HEDGING GAINS AND LOSSES
(US$ millions)
|
|
|
|
|
Change
|
|
2010
|
|
2009
|
|
Amount
|
|
%
|
Fresnillo
|
574.80
|
59.2%
|
366.17
|
65.4%
|
208.63
|
50.8%
|
57.0
|
Ci nega
|
94.13
|
9.7%
|
65.30
|
11.7%
|
28.83
|
7.0%
|
44.1
|
Herradura
|
217.29
|
22.4%
|
128.38
|
22.9%
|
88.91
|
21.7%
|
69.2
|
Soledad-Dipolos
|
84.09
|
8.7%
|
-
|
|
84.09
|
20.5%
|
N/A
|
Total for operating mines
|
970.31
|
100.0%
|
559.85
|
100.0%
|
410.46
|
100.0%
|
73.3
|
Other subsidiaries
|
1.15
|
|
0.33
|
|
0.82
|
|
N/A
|
Metal
hedging (losses) and gains
|
-
|
|
(24.79)
|
|
24.79
|
|
(100)
|
MXP/USD
exchange rate hedging (losses) and gains
|
3.02
|
|
(7.08)
|
|
10.10
|
|
N/A
|
Total Fresnillo plc
|
974.48
|
|
528.31
|
|
446.17
|
|
84.4
|
In 2010, total
gross profit for operating mines, adjusted to exclude hedging gains and losses,
increased by US$410.5 million a 73.3% increase over 2009.
This indicator
considerably benefited from the higher precious metal prices, contributing
US$327.9 million, of which 64.9% corresponded to the price of silver, 31.4% to
the price of gold and the remaining 3.7% to the prices of lead and zinc
by-products.
Operating
performance was also an important contributor to Gross Profit excluding hedging
effects. The most important factor in the 2010 increase was the contribution of
the new Soledad-Dipolos gold mine (US$84.1 million), with higher production
volumes at Herradura, Fresnillo and Ci nega also benefiting gross profit. In
total, the favourable effect generated by higher sales volumes at these three
mines was US$64.9 million..
Other favourable
effects were lower treatment and refining charges and changes in work in
progress due to the increase in Soledad-Dipolos inventories.
The benefits
described above were somewhat mitigated by: i) the adverse effect of the
US$37.7 million increase in adjusted production cost; ii) the US$27.2 negative
impact of the higher depreciation expense; iii) higher profit sharing; and iv)
the adverse impact of the revaluation of the Mexican peso against the US dollar
impacting peso-denominated costs.
The contribution
by mine to the Group's Gross Profit, excluding hedging, changed this year due
to the incorporation of Soledad-Dipolos which comprised 8.7% of the total,
diluting the participation of the other three mines. Fresnillo continues to be
the biggest contributor with 59.2%, followed by Herradura and Ci nega with
22.4% and 9.7% respectively..
Administrative
expenses
Administrative
expenses of US$52.6 million increased by 5.5% compared to 2009, and include
administrative fees paid to Servicios Administrativos Pe oles, S.A. de C.V.
(SAPSA) under the New Services Agreement (NSA), legal and advisory fees, and
expenses associated with administrative personnel working at the Group's
corporate offices. The increase was mainly related to additional administrative
services provided by SAPSA related to the new Soledad-Dipolos mine and to the
construction of Saucito.
Exploration expenses
BUSINESS
UNIT / PROJECT
(US$ millions)
|
Exploration expenses
|
Capitalised expenses
|
|
|
|
Herradura
|
8.3
|
0.0
|
Soledad -Dipolos
|
2.3
|
0.0
|
Fresnillo
|
8.8
|
0.0
|
Ci nega
|
5.4
|
0.0
|
Noche Buena
|
6.0
|
0.0
|
Herradura corridor
|
5.7
|
0.0
|
San Ram n
|
4.7
|
0.0
|
Saucito
|
0.0
|
4.2
|
Juanicipio
|
0.0
|
5.3
|
San Juli n
|
7.5
|
8.5
|
Orisyvo
|
6.1
|
0.0
|
San Juan
|
1.8
|
0.0
|
Ci
nega (area of influence)
|
6.4
|
0.0
|
Centauro Deep
|
2.1
|
0.0
|
Lucerito
|
1.4
|
0.0
|
Candame a
|
1.1
|
0.0
|
San Nicol s
|
0.7
|
0.0
|
Guanajuato
|
0.9
|
0.0
|
Leones
|
0.8
|
0.0
|
Others
|
12.1
|
0.0
|
TOTAL
|
82.1
|
18.0
|
Exploration
expenses for the year totalled US$82.1 million, a 67.4% increase over the
previous year. An additional US$18.0 million related to the development of the
Saucito mine and for the San Juli n and Juanicipio advanced exploration
projects was capitalised. These projects have sufficient geological and
technical information that allows for a reasonable expectation of becoming
operating mines in the future. Exploration expenses,
including those capitalised, totalled US$100.1 million, representing a 77.2%
increase over 2009.
As anticipated,
Fresnillo plc conducted an intensive programme of exploration and mining works
over the course of the year aiming to expand the resource and reserve base and
confirm resources estimates. This expenditure also included the Noche Buena
pre-feasibility study, San Julian and Orisyvo scoping studies and the
pre-feasibility study at Juanicipio. As part of our organic growth programme,
the exploration budget for 2011 has been increased to US$251.4 million, of
which US$100 million is expected to be capitalised.
EBITDA
EBITDA
& EBITDA MARGIN
(Year
ended 31 December, US$ millions)
|
2010
|
2009
|
% Change
|
Gross Profit
|
974.48
|
528.32
|
84.5%
|
+ Depreciation
|
105.22
|
67.23
|
56.5%
|
- Administrative Expenses
|
(52.60)
|
(49.87)
|
5.5%
|
- Exploration Expenses
|
(82.11)
|
(49.06)
|
67.4%
|
EBITDA
|
945.00
|
496.62
|
90.3%
|
EBITDA Margin
|
67.0%
|
58.4%
|
|
EBITDA, which is
calculated as gross profit as reflected in the income statement plus
depreciation less administrative and exploration expenses, achieved a new
record level of US$945.0 million in 2010, a 90.3% increase year-on-year. This
key financial indicator benefited from the higher gross profit levels,
partially offset by the increase in exploration expenses. Similarly, EBITDA
margin rose from 58.4% in 2009 to 67.0% in 2010.
Silverstream
revaluation effects
The Silverstream
Contract is accounted for as a derivative financial instrument carried at fair
value. In 2010, the increase in fair value of the Silverstream asset was
US$191.8 million, which represents a significant increase of 64.2% compared to
the value as at 31 December 2009. As a result, a corresponding non-cash gain
was recognised in the income statement. This unrealised gain comprised 18.8% of
the Group's profit before tax, highlighting the increased impact of this
instrument in the income statement. Since the IPO, unrealised, non-cash profits
associated with the Silverstream Contract have totalled US$211.2 million. As
silver prices are likely to move cyclically, any unrealised future losses would
also be recognised in the income statement. For example, the Group estimates
that a 25% increase/decrease in the expected future prices of silver as used in
the valuation at 31 December 2010, would result in an unrealised gain/loss
respectively of US$120.2 million recognised in the income statement. Further
information related to the Silverstream Contract is provided in the Balance
Sheet section below and note 8 in the Financial Information section.
Foreign exchange
The foreign
exchange result is caused by the conversion of monetary assets and liabilities
denominated in foreign currencies to US dollars. In 2010, a US$3.3 million
foreign exchange loss arose mainly as a result of: i) the devaluation of
the UK pound sterling against the US dollar on the dividends paid in pounds and
the conversion of the pound sterling position held in treasury to US dollars;
and ii) the revaluation of the MXN/ US dollar exchange rate which affected the
value of peso-denominated net liabilities when converted to US dollars. This
loss adversely compared with US$9.5 million foreign exchange gain recognised in
the 2009 Income Statement, following the devaluation of the US dollar against
the UK pound sterling, which affected the cash position denominated in
sterling.
Taxation
Increased profit
levels drove the income tax expense up to US$273.0 million, a 175.3% increase
compared to the previous year. Nevertheless, the effective tax rate under IFRS
was 26.7%, which is lower than the statutory 30% tax rate. The main factors in
the differential were: a) the revaluation of the MXN/US dollar exchange rate
which generated i) a foreign exchange loss registered under Mexican GAAP,
lowering the Group's taxable profits; and ii) movements in the US dollar
equivalent tax value of assets that were originally valued in MXN and are not
subsequently revalued for tax purposes with fluctuations in the Mexican peso/
US dollar exchange rate under Mexican GAAP; and b) certain inflation
adjustments for Mexican tax purposes that have no accounting effect.
Profit for the
year
Profit for the
year increased by 109.2% from US$358.3 million in 2009 to US$749.4 million in
2010. Profits due to non-controlling interests (minority shareholders) rose to
US$84.3 million in 2010, a 132.4% increase, as a result of the higher profits
recorded at Herradura, profits generated by Soledad-Dipolos and the unrealised
gain resulting from the Silverstream revaluation. Both mines belong to Penmont,
a company jointly owned by Fresnillo plc (56%) and Newmont (44%).
Despite the
132.4% increase in non-controlling interests, profit attributable to Group
shareholders increased by 106.6% to US$665.1 million in 2010.
Profit for the
year, excluding the effects of the revaluation of the Silverstream Contract,
increased by 78.7% from US$344.3 in 2009 to US$615.1 million in 2010.
Similarly, profit attributable to Group shareholders, excluding the
Silverstream effects, rose by 72.3% to US$530.8 million in 2010.
Cash flow
A summary of the
key items impacting the Group's cash flow is set out below:
CASH
FLOW KEY ITEMS
Year
ended 31 December, US$ millions)
|
2010
|
2009
|
% change
|
Cash
generated by operations before changes in working capital
|
983.6
|
548.8
|
79.2
|
(Increase)
/ decrease in working capital
|
(166.0)
|
(37.8)
|
339.1
|
Net
cash from operating activities
|
700.7
|
390.7
|
79.3
|
Silverstream Contract
|
55.6
|
39.0
|
42.6
|
Proceeds
from development works at Saucito
|
25.6
|
10.7
|
139.2
|
Purchase
of property, plant & equipment
|
(340.3)
|
(261.2)
|
30.3
|
Dividends
paid to shareholders of the Company
|
(182.6)
|
(93.6)
|
95.1
|
Dividends
paid to non-controlling interest
|
(8.5)
|
-
|
N/A
|
Net
increase in cash during the year
|
250.1
|
92.6
|
170.0
|
Cash at 31 December
|
559.5
|
312.2
|
79.2
|
The 79.2%
increase in cash generated by operations before changes in working capital was
a result of record profits generated at the mines. However, this effect was
mitigated by a US$166.0 million increase in working capital, which is mainly
explained by:
Trade and other receivables rose by
US$116.7 million. The main factor underlying this was the US$99.1 million
increase in accounts receivables due from Met-Mex, of which 55% is attributable
to the higher metal prices, 27% to the higher volumes of ore sold to Met-Mex,
and 18% by modifications in the payment conditions between Herradura and
Met-Mex associated with the dor production. Loans granted to
contractors for the purchase of equipment further increased other receivables.
These loans are consistent with our strategy of supporting contractors.
Inventories increased as a result of
the higher volumes of ore deposited at the Soledad-Dipolos pads and ore from
development works at Saucito, which were stocked in preparation for commercial
production in 1H 2011. In addition, the inventory of spare parts, including
tyres, increased in accordance with our policy to secure critical inputs
subject to scarcity.
Despite the
increase in working capital, cash flows from operating activities increased by
79.3% to US$700.7 million in 2010.
Other important
sources of funds were US$55.6 million received in proceeds under the
Silverstream Contract and US$25.6 million in proceeds generated from the sales
of ore from the development works at Saucito and processed at the Fresnillo
mine; the latter was credited to the cost of the project.
The Group
invested US$340.3 million in the purchase of property, plant and equipment, a
30.3% increase when compared to spend in 2009..
Investments in these items in 2010 are further described below:
PURCHASE
OF PROPERTY, PLANT AND EQUIPMENT
(US$ millions)
|
2010
|
|
Fresnillo mine
|
60.7
|
Mine
development and construction of the San Carlos shaft. Construction of ramps
and mining works at San Juli n project (US$22.9 millions)
|
Herradura mine
|
54.4
|
Purchase
of high-volume trucks and loaders, construction of leaching pads and
acquisition of surface land. Noche Buena's payment for mineral rights and
royalties acquisition (US$10.6 millions)
|
Ci nega mine
|
65.1
|
Mine
development, mining works, expansion of milling capacity, sinking of the
shaft and purchase of land
|
Soledad & Dipolos
|
36.8
|
Stripping
activities and construction of leaching pads
|
Saucito project
|
118.4
|
Mining
works and equipment for shafts and beneficiation plant
|
Other
|
4.9
|
Juanicipio,
La Parre a Exploration Company and SAFSA
|
Total
purchase of property, plant and equipment
|
340.3
|
|
Dividends paid in 2010 totalled US$191.1 million, almost doubling those paid in
2009. The 2010 dividend payments reflected i) the final 2009 dividend of
US$116.2 million and the 2010 interim dividend of US$66.4 million paid to
Fresnillo plc shareholders; and ii) US$8.5 million paid to Newmont, the
minority shareholder in Penmont.
The sources and
uses of funds described above resulted in a net increase of US$250.1 million in
cash and cash equivalents during the year. The combination of this increase
with the US$312.2 million balance at the beginning of the year and the
unfavourable effect of exchange rate movements on cash of US$2.7 million,
resulted in a net cash position of US$559.5 million as at 31 December 2010.
Balance sheet
In 2010, the
Group maintained a solid financial position with no bank debt.
Cash and cash
equivalents as of 31 December 2010 were US$559.5 million, a 79.2% increase
compared to year-end 2009. The main factors driving the significant increase in
cash and cash equivalents were described in the cash flow section.
Trade and other
receivables of US$225.0 million rose as a result of the increase in metal
prices and higher volumes sold. Additionally, turnover of accounts receivables
increased from 30 days in 2009 to 34 days in 2010 mainly as a result of
extended payment terms on dor sold by Minera Penmont from 5 to
15 days after product delivery. In addition, other accounts receivables
increased as a result of loans granted to contractors to purchase equipment.
These increases
were partially offset by the decrease in income tax refunds due, following the
recovery of excess income tax paid in provisional payments during 2009 over the
final income-tax return.
In accordance
with the Silverstream Contract, Fresnillo plc is entitled to receive all of the
proceeds in respect of the payable silver produced at the Sabinas mine owned
and operated by the Pe oles Group. This contract is accounted for as a
derivative financial instrument, with all payments received being credited
against the carrying value of the related asset. The change in the value of the
Silverstream derivative from US$298.6 million at the beginning of the year to
US$427.7 million at the year-end reflects proceeds of US$62.8 million (US$55.6
million in cash and US$7.2 million receivable) offset by a revaluation effect
of $191.8 million which is a non-cash gain reflected in the Group income
statement. Given the cyclical movements of silver prices, the value of the
Silverstream asset could increase or decline in line with the movements of the
silver price.
The net book
value of property, plant and equipment was US$895.8 million at 31 December
2010, an increase of 30.0% when compared to 2009, reflecting capital
expenditure during the year on new development projects and ongoing investments
to optimise our operations. The main additions underlying the US$207.1 increase
were the construction of the Saucito project, acquisition of new equipment
mainly at Minera Penmont, construction of the San Carlos shaft at Fresnillo,
purchase of land, and the sinking of the shaft and expansion of milling
capacity at Ci nega.
Fresnillo plc's
total equity was US$1,919.3 million as of 31 December 2010, a 47.3% increase
when compared to the balance at 31 December 2009. The total number of issued shares
remained at 717,160,159 and their corresponding rights and obligations are set
in the Group's Articles of Association.
The main factor
increasing total equity was the higher profits achieved during the year. Equity
attributable to minority shareholders rose from US$127.0 million to US$205.5
million as of 31 December 2010, reflecting the increased asset value
attributable to the minority shareholders..
Dividends of
US$191.1 million were paid in the year, from retained earnings generated in
previous years. Fresnillo plc's dividend policy takes into account the
profitability of the business, underlying growth in earnings and the capital
and cash flow requirements to support future production and expansions.
Dividend
In September 2010
an interim dividend of 9.2 US cents per Ordinary Share was declared and paid
for a total of US$66.4 million. Based on the Group's 2010 performance, the
Directors have recommended a final dividend of 35.6 US cents per Ordinary
Share, which will be paid on 20 May 2011 to shareholders on the register on 3
May 2011. The dividend will be paid in UK pounds sterling unless shareholders
elect to be paid in US dollars. The Company s dividend policy takes into
account the profitability of the business and underlying growth in earnings of
the Company, as well as its capital requirements and cashflows, whilst
maintaining an appropriate level of dividend cover.
Responsibility
Statement of the Directors
I confirm on behalf
of the Board that to the best of my knowledge;
a) the financial
information presented in this preliminary announcement, prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the
European Union, gives a true and fair view of the assets, liabilities,
financial position and profit and loss of the Company and the Group; and
b) the Management Report includes a fair review of the
development and performance of the business, and the principal risks and
uncertainties that they face.
For and on behalf
of the Board
Jaime Lomel n
Chief Executive
Officer
28 February 2011
Forward looking
statements
This document
includes statements that are, or may be deemed to be, "forward-looking
statements". These forward-looking statements can be identified by the use
of forward-looking terminology, including the terms "believes",
"estimates", "plans", "projects",
"anticipates", "expects", "intends",
"may", "will", or "should" or, in each case,
their negative or other variations or comparable terminology, or by discussions
of strategy, plans, objectives, goals, future events or intentions. These
forward-looking statements include all matters that are not historical facts.
They appear in a number of places throughout this document and include, but are
not limited to, statements regarding the Group's intentions, beliefs or current
expectations concerning, among other things, the Group's results of operations,
financial position, liquidity, prospects, growth, strategies and the silver and
gold industries. By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward-looking
statements are not guarantees of future performance and the actual results of
the Group's operations, financial position and liquidity, and the development
of the markets and the industry in which the Group
operates, may differ materially from those described in, or suggested by, the
forward-looking statements contained in this document. In addition, even if the
results of operations, financial position and liquidity, and the development of
the markets and the industry in which the Group operates are consistent with
the forward-looking statements contained in this document, those results or
developments may not be indicative of results or developments in subsequent
periods. A number of factors could cause results and developments to differ
materially from those expressed or implied by the forward-looking statements
including, without limitation, general economic and business conditions,
industry trends, competition, commodity prices, changes in regulation, currency
fluctuations (including the US dollar and Mexican peso exchange rates), the
Group's ability to recover its reserves or develop new reserves, including its
ability to convert its resources into reserves and its mineral potential into
resources or reserves, changes in its business strategy, political and economic
uncertainty.
Forward-looking
statements may, and often do, differ materially from actual results. Any
forward-looking statements in this document speak only as of the date of this
document, reflect the Group's current view with respect to future events and
are subject to risks relating to future events and other risks, uncertainties
and assumptions relating to the Group's operations, results of operations,
growth strategy and liquidity. Investors should specifically consider the
factors identified in this document which could cause actual results to differ
before making an investment decision. Subject to the requirements of the
Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules
or applicable law, the Group explicitly disclaims any obligation or undertaking
publicly to release the result of any revisions to any forward-looking
statements in this document that may occur due to any change in the Group's
expectations or to reflect events or circumstances after the date of this
document.
Consolidated
Income Statement
(US$
thousands)
|
Notes
|
Year ended 31December2010
|
Year ended 31December2009
|
|
|
|
|
|
|
|
|
|
|
|
Pre- Silverstream revaluation effect
|
Silverstream revaluation effect
|
Total
|
Pre- Silverstream revaluation effect
|
Silverstream revaluation effect
|
Total
|
Continuing operations:
|
|
|
|
|
|
|
|
Revenues
|
4
|
1,409,554
|
|
1,409,554
|
849,944
|
|
849,944
|
Cost of sales
|
5
|
(435,076)
|
|
(435,076)
|
(321,629)
|
|
(321,629)
|
|
|
|
|
|
|
|
|
Gross profit
|
|
974,478
|
|
974,478
|
528,315
|
|
528,315
|
Administrative expenses
|
|
(52,594)
|
|
(52,594)
|
(49,867)
|
|
(49,867)
|
Exploration expenses
|
|
(82,113)
|
|
(82,113)
|
(49,063)
|
|
(49,063)
|
Other income
|
|
4,983
|
|
4,983
|
3,873
|
|
3,873
|
Other expenses
|
|
(11,299)
|
|
(11,299)
|
(4,502)
|
|
(4,502)
|
|
|
|
|
|
|
|
|
Profit
from continuing operations before net finance costs and income tax
|
|
833,455
|
|
833,455
|
428,756
|
|
428,756
|
Finance income
|
|
3,887
|
|
3,887
|
1,664
|
|
1,664
|
Finance costs
|
|
(3,483)
|
|
(3,483)
|
(1,901)
|
|
(1,901)
|
Revaluation
effects of Silverstream contract
|
8
|
-
|
191,840
|
191,840
|
-
|
19,401
|
19,401
|
Foreign exchange (loss)/gain
|
|
(3,332)
|
|
(3,332)
|
9,498
|
|
9,498
|
|
|
|
|
|
|
|
|
Profit
from continuing operations before income tax
|
|
830,527
|
191,840
|
1,022,367
|
438,017
|
19,401
|
457,418
|
Income tax expense
|
6
|
(215,417)
|
(57,552)
|
(272,969)
|
(93,719)
|
(5,432)
|
(99,151)
|
|
|
|
|
|
|
|
|
Profit
for the year from continuing operations
|
|
615,110
|
134,288
|
749,398
|
344,298
|
13,969
|
358,267
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
Equity
shareholders of the Company
|
|
530,838
|
134,288
|
665,126
|
308,042
|
13,969
|
322,011
|
Non-controlling interest
|
|
84,272
|
-
|
84,272
|
36,256
|
-
|
36,256
|
|
|
|
|
|
|
|
|
|
|
615,110
|
134,288
|
749,398
|
344,298
|
13,969
|
358,267
|
|
|
|
|
|
|
|
|
Earnings
per share: (US$)
|
|
|
|
|
|
|
|
Basic
and diluted earnings per ordinary share from continuing operations
|
7
|
-
|
|
0.927
|
-
|
|
0.449
|
|
|
|
|
|
|
|
|
Adjusted earnings per share: (US$)
|
|
|
|
|
|
|
|
Adjusted
basic and diluted earnings per ordinary share from continuing operations
|
7
|
0.740
|
|
-
|
0.430
|
|
-
|
|
|
|
|
|
|
|
|
Consolidated Statement of Comprehensive Income
|
|
|
|
|
|
Notes
|
|
|
|
2010
|
2009
|
|
|
(US$ thousands)
|
Profit for the year
|
|
749,398
|
358,267
|
Net (gain)/ loss on cash flow hedges recycled
to income statement
|
|
(2,102)
|
34,038
|
Tax effect of cash flow hedges recycled to
income statement
|
6
|
631
|
(9,531)
|
Net unrealised gain on cash flow hedges
|
|
3,927
|
3,918
|
Tax
effect of unrealised gain on cash flow hedges
|
6
|
(1,179)
|
(1,122)
|
|
|
|
|
Net
effect of cash flow hedges
|
|
1,277
|
27,303
|
Fair
value gain on available-for- sale financial assets
|
|
73,342
|
22,880
|
Tax
effect of fair value gain on available-for-sale financial assets
|
6
|
(20,536)
|
(6,407)
|
|
|
______________
|
______________
|
Net
effect of available -for-sale financial assets
|
|
52,806
|
16,473
|
Foreign currency translation
|
|
540
|
292
|
|
|
|
|
Other
comprehensive income for the period, net of tax
|
|
54,623
|
44,068
|
|
|
|
|
Total
comprehensive income for the period, net of tax
|
|
804,021
|
402,335
|
|
|
|
|
Attributable to:
|
|
|
|
Equity
shareholders of the Company
|
|
719,749
|
366,079
|
Non-controlling interest
|
|
84,272
|
36,256
|
|
|
|
|
|
|
804,021
|
402,335
|
Consolidated Balance Sheet
|
Notes
|
Year ended 31 December
|
|
|
2010
|
2009
|
|
|
(US$ thousands)
|
ASSETS
|
|
|
|
Non-current assets
|
|
|
|
Property, plant and equipment
|
|
895,783
|
688,718
|
Available-for-sale financial assets
|
|
141,777
|
68,435
|
Silverstream contract
|
8
|
351,530
|
256,059
|
Deferred tax asset
|
6
|
14,226
|
9,363
|
Other receivables
|
|
11,687
|
-
|
Other assets
|
|
2,503
|
504
|
|
|
|
|
|
|
1,417, 506
|
1,023,079
|
|
|
|
|
Current assets
|
|
|
|
Inventories
|
|
63,092
|
33,783
|
Trade and other receivables
|
|
224,984
|
108,242
|
Prepayments
|
|
2,532
|
1,912
|
Derivative financial instruments
|
|
4,056
|
1,373
|
Silverstream contract
|
8
|
76,151
|
42,600
|
Income tax refunds due
|
|
-
|
20,167
|
Cash and cash equivalents
|
|
559,537
|
312,192
|
|
|
|
|
|
|
930,352
|
520,269
|
|
|
|
|
Total assets
|
|
2,347,858
|
1,543,348
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
Capital
and reserves attributable to shareholders of the Company
|
|
|
|
Share capital
|
|
358,680
|
358,680
|
Share premium
|
|
818,597
|
818,597
|
Capital reserve
|
|
(526,910)
|
(526,910)
|
Net
unrealised gains on cash flow hedges
|
|
2,172
|
895
|
Net
unrealised gains on available-for-sale financial assets
|
|
65,072
|
12,266
|
Foreign currency translation reserve
|
|
(555)
|
(1,095)
|
Retained earnings
|
|
996,658
|
513,691
|
|
|
|
|
|
|
1,713,714
|
1,176,124
|
Non-controlling interest
|
|
205,554
|
126,979
|
|
|
|
|
Total equity
|
|
1,919,268
|
1,303,103
|
|
|
|
|
Non-current liabilities
|
|
|
|
Provision
for mine closure cost
|
|
39,682
|
35,513
|
Provision
for pensions and other post-employment benefit plans
|
|
6,420
|
5,811
|
Other liabilities
|
|
-
|
4,811
|
Deferred tax liability
|
6
|
217,448
|
119,944
|
|
|
|
|
|
|
263,550
|
166,079
|
|
|
|
|
Current liabilities
|
|
|
|
Trade and other payables
|
|
70,789
|
48,286
|
Derivative financial instruments
|
|
152
|
95
|
Income tax
|
|
54,480
|
-
|
Employee profit sharing
|
|
39,619
|
25,785
|
|
|
|
|
|
|
165,040
|
74,166
|
|
|
|
|
Total liabilities
|
|
428,590
|
240,245
|
|
|
|
|
Total equity and liabilities
|
|
2,347,858
|
1,543,348
|
|
|
|
|
|
|
|
|
|
Consolidated Cash Flow Statement
|
|
|
|
|
|
Notes
|
Year ended 31 December
|
|
|
2010
|
2009
|
|
|
(US$ thousands)
|
Net
cash from operating activities
|
10
|
700,699
|
390,712
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Purchase
of property, plant and equipment
|
|
(340,297)
|
(261,200)
|
Purchase
of available-for-sale financial assets
|
|
-
|
(25)
|
Proceeds from the sale of property, plant and
equipment and other assets
|
|
72
|
1,044
|
Proceeds
from mines under development
|
|
25,563
|
10,753
|
Loans granted to contractors
|
|
(14,504)
|
-
|
Repayments
of loans granted to contractors
|
|
1,363
|
-
|
Silverstream contract
|
8
|
55,623
|
39,010
|
Interest received
|
|
2,859
|
1,665
|
Other proceeds
|
|
7,231
|
3,526
|
|
|
|
|
Net
cash used in investing activities
|
|
(262,090)
|
(205,227)
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Capital contribution
|
|
2,807
|
891
|
Dividends
paid to shareholders of the Company
|
|
(182,590)
|
(93,623)
|
Dividends
paid to non-controlling interest
|
|
(8,504)
|
-
|
Interest paid
|
|
(251)
|
(105)
|
|
|
|
|
Net
cash used in financing activities
|
|
(188,538)
|
(92,837)
|
|
|
|
|
Net
increase in cash and cash equivalents during the year
|
|
250,071
|
92,648
|
Effect of exchange rate on cash and cash
equivalents
|
|
(2,726)
|
7,559
|
Cash
and cash equivalents at 1 January
|
|
312,192
|
211,985
|
|
|
|
|
Cash
and cash equivalents at 31 December
|
|
559,537
|
312,192
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Changes in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to equity holders of the Company
|
|
|
|
Share
capital
|
Share
premium
|
Capital reserve
|
Net
unrealised gains/
(losses) on
revaluation of
cash flow
hedges
|
Unrealised
gains/
(losses) on
available-
for-sale
financial
assets
|
Foreign
currency
translation
reserve
|
Retained
earnings
|
Total
|
Non-controllingy
interest
|
Total
equity
|
|
|
(US$ thousands)
|
|
Balance at 1 January 2009
|
|
358,680
|
818,597
|
(526,910)
|
(26,408 )
|
(4,207)
|
(1,387)
|
285,195
|
903,560
|
89,832
|
993,392
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
-
|
-
|
322,011
|
322,011
|
36,256
|
358,267
|
Other
comprehensive income, net of tax
|
|
-
|
-
|
-
|
27,303
|
16,473
|
292
|
-
|
44,068
|
-
|
44,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
-
|
-
|
-
|
27,303
|
16,473
|
292
|
322,011
|
366,079
|
36,256
|
402,335
|
Capital contribution
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
891
|
891
|
Dividends paid
|
|
-
|
-
|
-
|
-
|
-
|
-
|
(93,515)
|
(93,515)
|
-
|
(93,515)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2009
|
|
358,680
|
818,597
|
(526,910)
|
895
|
12,266
|
(1,095)
|
513,691
|
1,176,124
|
126,979
|
1,303,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2010
|
|
358,680
|
818,597
|
(526,910)
|
895
|
12,266
|
(1,095)
|
513,691
|
1,176,124
|
126,979
|
1,303,103
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
-
|
-
|
665,126
|
665,126
|
84,272
|
749,398
|
Other
comprehensive income, net of tax
|
|
-
|
-
|
-
|
1,277
|
52,806
|
540
|
-
|
54,623
|
-
|
54,623
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
-
|
-
|
-
|
1,277
|
52,806
|
540
|
665,126
|
719,749
|
84,272
|
804,021
|
Capital contribution
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,807
|
2,807
|
Dividends paid
|
|
-
|
-
|
-
|
-
|
-
|
-
|
(182,159)
|
(182,159)
|
(8,504)
|
(190,663)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2010
|
|
358,680
|
818,597
|
(526,910)
|
2,172
|
65,072
|
(555)
|
996,658
|
1,713,714
|
205,554
|
1,919,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
to the Consolidated Financial Statements
1
Corporate Information
Fresnillo
plc ("the Company") is a public limited company and registered in
England and Wales and is the holding company for the Fresnillo subsidiaries
detailed below ("the Group").
Industrias
Pe oles S.A.B. de C.V.("Pe oles") currently owns 77 percent of the
shares of the Company and the ultimate controlling party of the Company is the
Baill res family, whose beneficial interest is held through Pe oles. Copies of
Pe oles' accounts can be obtained from www.penoles.com.mx.
The
financial information presented in this preliminary announcement was authorised
for issue by the Board of Directors of Fresnillo plc on 28 February 2011
The
auditor's report on those financial statements was unqualified and did not
contain a statement under section 498 of the Companies Act 2006.
The
audited financial statements will be delivered to the Registrar of Companies in
due course.
The
financial information contained in this document does not constitute statutory
accounts as defined in section 435 of the Companies Act 2006.
The
Group's principal business is the mining and beneficiation of
non-ferrous minerals, and the sale of related production. The primary contents
of this production are silver, gold, lead and zinc. The Group has four fully
developed operating mines: Fresnillo, Herradura, Ci nega, and Soledad-Dipolos,
the latter starting production in January 2010.
2
Significant Accounting Policies
(a)
Basis of preparation and consolidation, and statement of compliance
The
financial information presented in this preliminary announcement has been
prepared in accordance with the Disclosure and Transparency Rules of the UK
Financial Services Authority, International Financial Reporting Standards
(IFRS) as adopted by the European Union and in accordance with the provisions
of the Companies Act 2006. The financial information presented in this
preliminary announcement is also consistent with IFRS as issued by the
International Accounting Standards Board.
The
financial information presented in this preliminary announcementhas been prepared on
a historical cost basis, except for derivative financial instruments,
available-for-sale financial instruments and defined benefit pension scheme
assets which have been measured at fair value.
The
financial information is presented in dollars of the United States of
America (US dollars or US$ and all values are rounded to the nearest
thousand ($000) except when otherwise indicated.
Basis of consolidation
The
financial information presented in this preliminary announcement sets out the
Group's financial position as of 31 December 2010 and 2009, and the results of
operations and cash flows for the years then ended.
Entities
that constitute the Group are those enterprises controlled by the Group
regardless of the number of shares owned by the Group. Control exists when the
Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
Entities are consolidated from the date on which control is transferred to the
Group and cease to be consolidated from the date on which control is
transferred out of the Group. The purchase method of accounting is used to
account for the acquisition of subsidiaries by the Group.
The
financial information presented in this preliminary announcement has been
prepared for the years ended 31 December 2010 and 2009 using consistent
accounting policies. All intra-group balances, transactions, income and
expenses and profits and losses, including unrealised profits arising from
intra-group transactions, have been eliminated on consolidation. Unrealised
losses are eliminated in the same way as unrealised gains except that they are
only eliminated to the extent that there is no evidence of impairment.
Non-controlling
interests in the net assets of consolidated subsidiaries are identified
separately
from the Group's equity therein. These
interests primarily represent the interests in Minera Penmont, S. de R.L. de
C.V., Minera El Bermejal, S. de R.L. de C.V. and Minera Juanicipio, S.A.
de C.V. not held by the Group. The interest of non-controlling shareholders may
be initially
measured either at fair value or at the
non-controlling interest's proportionate share of the
acquiree's identifiable net assets. The choice
of measurement basis is made on an acquisition by-
acquisition basis. Subsequent
to acquisition, non-controlling interests consist of the amount
attributed to such interests at initial
recognition and the non-controlling interest's share of changes in equity since
the date of the combination. Any losses of a subsidiary are attributed to the
non-controlling interests even if that results in a deficit balance.
(b)
Changes in accounting policies and presentation rules
The
accounting policies applied are consistent with those applied in the
preparation of the consolidated financial statements for the year ended 31
December 2009 except for the adoption of certain new standards, amendments and
interpretations to existing standards. Those that are applicable to the Group
are as follows:
IFRS 3 (Revised)
'Business Combinations' and IAS 27 (Revised) 'Consolidated and Separate
Financial Statements', issued in January 2008. IFRS 3R introduces a number of
changes in the accounting for business combinations occurring in accounting
periods beginning on or after 1 July 2009 that will impact the amount of
goodwill recognised, the reported results in the period that an acquisition occurs,
and future reported results. IAS 27R requires that a change in the ownership
interest of a subsidiary (without loss of control) is accounted for as an
equity transaction. Furthermore, the amended standard changes the accounting
for losses incurred by partially-owned subsidiaries as well as the loss of
control of a subsidiary. Other consequential amendments were made to IAS 7
'Statement of Cash Flows', IAS 12 'Income Taxes', IAS 21 'The Effects of
Changes in Foreign Exchange Rates', IAS 28 'Investment in Associates' and IAS
31 'Interests in Joint Ventures'. The changes introduced by IFRS 3R and IAS 27R
will affect future acquisitions or loss of control and transactions with
Non-controlling interests (previously referred to as "minority
interests").
Other
new standards, amendments and interpretations that are effective but not
applicable to the Group are as follows:
IFRS 1
(Amendment) "First-time adoption of international financial reporting
Standards-Cost of an Investment in a Subdisidiary, Jointly controlled Entity or
Associate"
IFRS 2
(Amendment) Share-based Payment-Vesting Conditions and Cancellations"
IAS 39
(Amendment) "Financial instruments: Recognition and Measurement-Eligible
hedged items.
IFRIC 17
"Distributions of Non-Cash Assets to Owners"
Improvements
to IFRSs
In
April 2009 the Board issued its second omnibus of amendments to its standards,
primarily with a view to removing inconsistencies and clarifying wording. There
are separate transitional provisions for each standard. The adoption of the
following amendments resulted in changes to accounting policies but did not
have any impact on the financial position or performance of the Group:
IFRS 8 'Operating
Segments' clarifies that segment assets and liabilities need only be reported when
those assets and liabilities are included in measures that are used by the
chief operating decision maker. As the Group's chief operating decision maker
does not review segment assets and liabilities, the Group has not disclosed
this information in note 3.
IAS 7 'Statement
of Cash Flows' clarifies that only expenditures that result in
a recognised asset can be classified as a cash flow from investing activities.
The amendment has no impact on the Group.
IAS 17 'Leases' clarifies the
classification of land and buildings and the specific guidance on classifying
land as a lease has been removed (only the general guidance remains). The
amendment has no impact on the financial information as there are no property,
plant and equipment under finance lease.
IAS 36 'Impairment
of Assets' clarifies that the largest unit permitted for allocating goodwill,
acquired in a business combination, is the operating segment as defined in IFRS
8 before aggregation for reporting purposes. The amendment has no impact on the
Group as there have been no business combinations.
Other
amendments resulting from the 2009 Improvements to IFRS did not have any impact
on the accounting policies, financial position or performance of the Group.
New
and amended standards and interpretations
Standards
and amendments issued but not yet effective up to the date of issuance of the
financial information are listed below. This listing is of standards and
interpretations issued, which the Group reasonably expects to be applicable at
a future date. The Group intends to adopt those standards when they become
effective. The Group has not early adopted any standard, interpretation or
amendment that was issued but is not yet effective.
In
November 2009, the IASB issued IFRS 9 Financial Instruments: Classification
and Measurement (subsequently amended in October 2010). This new standard
represents the first phase of the IASBs work on the replacement of IAS 39 and
applies to classification and measurement of financial assets and financial
liabilities as defined in IAS 39. The standard is effective for annual periods
beginning on or after 1 January 2013. In subsequent phases, the IASB will
address hedge accounting and recognition. The completion of this project is
expected in early 2011.
The
adoption of the first phase of IFRS 9 will have an effect on the
classification and measurement of the Group's financial assets. The Group will
quantify the effect in conjunction with the other phases, when issued, to
present a comprehensive picture.
In
October 2010, the IASB issued amendments to IFRS 7 Financial Instruments:
Disclosures - Transfers of Financial Assets, which are applicable for
annual periods beginning on or after 1 July 2011. The Group intends to adopt
this standard when it becomes effective.
The
Group considers that the amendments to the following standards and
interpretations, which are relevant to the Group will
not have any impact on the accounting policies, financial position or
performance of the Group:
IAS
24 Related Party Disclosures (Revised)
IFRIC
14 Prepayments of a Minimum Funding Requirement (Amendment)
In
May 2010 the IASB issued improvements to IFRSs, a further omnibus of
amendments to its standards. These amendments have not been adopted as they
become effective for annual periods on or after either 1 July 2010 or 1 January
2011. The Group, however, expects no impact from the adoption of the amendments
on its financial position or performance.
3
Segment Reporting
For
management purposes the Group is organised into operating segments based on
producing mines.
At
31 December 2009 the Group had three reportable operating segments. The
construction of the Soledad-Dipolos mine was successfully concluded in December
2009 and commercial production started in January 2010.
At
31 December 2010 the Group therefore has four reportable operating segments,
representing the Group's four producing mines as follows;
The Fresnillo mine,
located in the State of Zacatecas is the worlds
largest primary silver mine
The Cienega mine,
located in the State of Durango is an underground gold mine
The Herradura mine,
located in the State of Sonora is an open pit gold mine
The Soledad-Dipolos
mine, located in the State of Sonora is an open pit gold mine.
The
operating performance and financial results are reviewed by management. As the
Group s chief operating decision maker does not review segment assets and
liabilities, the Group has not disclosed this information.
No
operating segments have been aggregated to form the above reportable operating
segment. Projects under development have been aggregated into the Other segment below.
Management
monitors the results of its operating segments separately for the purpose of
performance assessment and making decisions about resource allocation.
Segment performance is evaluated without taking into account certain
adjustments included in Revenue as reported in the consolidated income
statement, and certain costs included within Cost of Sales and Gross Profit
which are considered to be outside of the control of the operating management
of the mines. The table below provides a reconciliation
from segment profit to Gross Profit as per the consolidated income statement.
Other income and expenses included in the consolidated income statement are not
allocated to operating segments. Transactions between reportable segments are
accounted for on an arm's length basis similar to transactions with third
parties.
In
2010 all revenue was derived from customers based in Mexico.
In
2009 all revenue was derived from customers based in Mexico, the Company's
country of domicile, except for approximately 3.3% of revenue as per the
consolidated income statement which was sold to a third party customer based in
the Netherlands. This revenue is shown within the Fresnillo and Ci nega
segments below. All non-current assets are located in Mexico.
Operating
segments
The
following tables present revenue and profit
information regarding the Group's operating segments for the year ended 31
December 2010 and 2009, respectively.
Year ended 31 December 2010
(US$ thousands)
|
Fresnillo
|
Herradura
|
Cienega
|
Soledad-
Dipolos
|
Other
|
Adjustments and eliminations
|
Total
|
Revenues:
|
|
|
|
|
|
|
|
Third party
|
733,537
|
366,047
|
173,200
|
136,770
|
-
|
-
|
1,409,554
|
Inter-Segment
|
-
|
-
|
-
|
|
35,613
|
(35,613)
|
-
|
|
|
|
|
|
|
|
|
Segment revenues
|
733,537
|
366,047
|
173,200
|
136,770
|
35,613
|
(35,613)
|
1,409,554
|
|
|
|
|
|
|
|
|
Segment Profit
|
626,983
|
268,933
|
116,615
|
97,669
|
35,612
|
(31,457)
|
1,114,355
|
|
Hedging
|
|
|
|
|
|
|
3,020
|
|
Depreciation
|
|
|
|
|
|
|
(105,216)
|
|
Employee profit sharing
|
|
|
|
|
|
|
(37,682)
|
|
|
|
|
|
|
|
|
|
|
Gross
profit as per the income statement
|
|
|
|
|
|
|
974,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure (1)
|
60,716 (2)
|
54,411(3)
|
65,083(4)
|
36,790 (5)
|
125,021(6)
|
(1,813)
|
340,297
|
(1)
Capital expenditure consists of additions of property, plant and equipment,
excluding additions relating to changes in the mine closure provision.
(2)
Capital expenditure consists of scoop equipment and drilling jumbos, mine
development work including a shaft and ramps.
(3)
Capital expenditure relates to leaching pads construction, equipment such as
rotary drill rig tractors and dump trucks, construction of a
electrical station, open pit mine development activities and Noche Buena s
payment for the acquisition of mineral rights and royalties.
(4)
Capital expenditure relates to a processing plant expansion, scoop equipment,
land and mine development work including work on a tailing dam
(5)
Capital expenditure relates to leaching pads construction, equipment such as
dump trucks and tractors, rotary dril rig and open pit mine development
activities.
(6)
Capital expenditure relates to the Saucito mine developments including hoisting
equipment and ramp and shaft developments.
(7)
Treatment and refining charges amounting to US$64,366 are included in the
segment profit. Previously this information was presented in a separate line.
Year
ended 31 December 2009
(US$ thousands)
|
Fresnillo
|
Herradura
|
Cienega
|
Soledad y
Dipolos
|
Other
|
Adjustments and eliminations
|
Total
|
Revenues:
|
|
|
|
|
|
|
|
Third party
|
500,433
|
245,818
|
128,479
|
-
|
-
|
(24,786)
|
849,944
|
Inter-Segment
|
-
|
-
|
-
|
-
|
17,385
|
(17,385)
|
-
|
|
|
|
|
|
|
|
|
Segment revenues
|
500,433
|
245,818
|
128,479
|
-
|
17,385
|
(42,171)
|
849,944
|
|
|
|
|
|
|
|
|
Segment Profit
|
407,664
|
159,953
|
80,532
|
-
|
18,483
|
(14,246)
|
652,386
|
Hedging
|
|
|
|
|
|
|
(31,863)
|
Depreciation
|
|
|
|
|
|
|
(67,227)
|
Employee profit sharing
|
|
|
|
|
|
|
(24,981)
|
|
|
|
|
|
|
|
|
Gross
profit as per the income statement
|
|
|
|
|
|
|
528,315
|
Capital expenditure (1)
|
34,628(2)
|
64,813(3)
|
41,665(4)
|
57,734
|
50,034(5)
|
1,573
|
250,447
|
(1)
Capital expenditure consists of additions of property, plant and equipment,
excluding additions relating changes in the mine closure provision.
(2)
Capital expenditure relates to mine development work, scoop equipment, land and
raise boring equipment.
(3)
Capital expenditure relates to the acquisition of the Noche Buena gold project,
dump trucks, and investment in the maintenance workshop.
(4)
Capital expenditure relates to mine development work, scoop equipment, land and
raise boring equipment.
(5)
Capital expenditure relates to the Saucito mine developments.
(6)
Treatment and refining charges amounting US$69,227 were reclassified in 2009 to
the segment profit line for comparative purposes. Previously this information
was presented in a separate line.
4
Revenues
Revenues
reflect the sale of goods, being concentrates, dor ,
slag, and precipitates of which the primary contents are silver, gold, lead and
zinc(1) .
a) Revenues by product sold
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
Lead
concentrates (containing silver, gold, lead and by-products)
|
797,887
|
573,594
|
Dor
and slag (containing gold, silver
and by-products)
|
502,820
|
245,822
|
Zinc concentrates
|
53,566
|
38,324
|
Precipitates
|
55,281
|
16,990
|
Effects of hedging
|
-
|
(24,786)
|
|
|
|
|
1,409,554
|
849,944
|
|
|
|
|
|
|
|
|
Substantially
all lead concentrates, precipitates, dor and slag, were sold to Pe oles'
metallurgical complex for smelting and refining.
(1)
Included in the value of lead and zinc concentrates, precipitates and dor are
provisional price adjustments which represent changes in the fair value of
embedded derivatives. In 2010 the Group has recognised a profit of US$35.6
million (2009: profit of US$24.0 million).
b)
Value of metal content in products sold
For
products other than refined silver and gold, invoiced revenues are derived from
the value of metal content adjusted by treatment and refining charges incurred
by the metallurgical complex of the customer. The value of the metal
content of the products sold, before treatment and refining charges is as
follows:
|
|
|
|
|
Year ended 31 December
|
|
|
2010
|
2009
|
|
|
(US$ thousands)
|
|
Silver
|
746,176
|
529,626
|
|
Gold(1)
|
653,294
|
334,169
|
|
Zinc(2)
|
40,073
|
28,282
|
|
Lead(3)
|
34,377
|
27,094
|
|
|
|
|
|
Value
of metal content in products sold
|
1,473,920
|
919,171
|
|
Adjustment
for treatment and refining charges
|
(64,366)
|
(69,227)
|
|
|
|
|
|
Total revenues(4)
|
1,409,554
|
849,944
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes hedging losses of US$nil (2009: US$25 million)
(2)
Includes hedging gains of US$nil (2009: US$0.1 million)
(3)
Includes hedging gains of US$nil (2009: US$0.1 million)
(4)
Included in the value of lead and zinc concentrates, precipitates and dor are
provisional price adjustments which represent changes in the fair value of
embedded derivatives. In 2010 the Group has recognised a profit of US$35.6
million (2009: profit of US$24.0 million).
The
average realised prices for the gold and silver content of products sold,
including the effects of hedging but prior to the deduction of treatment and
refining charges, were:
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ per ounce)
|
Gold
|
1,252.1
|
988.9
|
Silver
|
21.4
|
15.3
|
5
Cost of sales
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
Depreciation
|
105,216
|
67,227
|
Personnel expenses
|
82,932
|
60,349
|
Maintenance and repairs
|
56,494
|
39,251
|
Operating materials
|
65,177
|
47,110
|
Energy
|
57,856
|
35,257
|
Contractors
|
59,801
|
31,905
|
Freight
|
9,027
|
6,143
|
Mining rights and contributions
|
4,775
|
4,633
|
(Gain)/Loss
on foreign currency hedges
|
(3,020)
|
7,077
|
Change
in work in progress and finished goods (ore inventories)
|
(16,822)
|
12,944
|
Other
|
13,640
|
9,733
|
|
|
|
|
435,076
|
321,629
|
|
|
|
|
|
|
|
|
6
Income tax expense
a) The major components of income tax expense are:
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
Consolidated income statement:
|
|
|
Current income tax:
|
|
|
Current income tax charge
|
196,332
|
110,427
|
Amounts
overprovided in previous years
|
(1,308)
|
(6,108)
|
IETU(1)
in excess of income tax
|
-
|
249
|
Recognition
of previously un-recognised tax losses
|
-
|
(12,946)
|
|
|
|
|
195,024
|
91,622
|
|
|
|
Deferred income tax:
|
|
|
Origination
and reversal of temporary differences
|
20,393
|
13,189
|
Changes
to future tax rates(2)
|
-
|
5,082
|
Recognition
of previously un-recognised tax losses
|
-
|
(757)
|
Amounts
overprovided in previous years
|
-
|
(4,553)
|
Revaluation
effects of Silverstream contract
|
57,552
|
(5,432)
|
|
|
|
|
77,945
|
7,529
|
|
|
|
|
Income
tax expense reported in the income statement
|
272,969
|
99,151
|
|
|
|
|
|
|
|
|
(1)
Business Flat tax (Impuesto Empresarial a Tasa Unica" or "IETU")
(2)
On 7th December 2009 new temporary tax rates were published in the
Official Daily of the Federal Government. The tax rate for 2010 is 30% and will
continue in effect for 2011 and 2012, the tax rate for 2013 will be 29% and the
tax rate from 2014 will be 28%. Deferred taxes have been calculated at the rate
applicable to the year the amounts are expected to materialise.
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
Consolidated
Statement of comprehensive income:
|
|
|
Deferred
income tax related to items charged or credited directly to other
comprehensive income:
|
|
|
Recycling
of net gain/(loss) gain on valuation of cash flow hedges to income
|
631
|
(9,531)
|
Net
gain arising on valuation of cash flow hedges
|
(1,179)
|
(1,122)
|
Net
expense arising on unrealised gain on available-for-sale assets
|
(20,536)
|
(6,407)
|
|
|
|
Income
tax expense reported in other comprehensive income
|
(21,084)
|
(17,060)
|
|
|
|
(b)
The following is a reconciliation of the income tax expense at the Group's
statutory income rate to income tax expense at the Group's effective income tax
rate.
|
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
|
|
|
Accounting
profit before income tax
|
1,022,367
|
457,418
|
|
|
|
Tax
at the Group's statutory income tax rate 30.0% (2009: 28.0%)
|
306,710
|
128,077
|
Expenses
not deductible for tax purposes
|
760
|
1,547
|
Inflationary
uplift of the tax base of assets and liabilities
|
(13,802)
|
(4,787)
|
Recognition
of previously un-recognised tax losses
|
-
|
(13,703)
|
Current
income tax overprovided in previous years
|
(1,308)
|
(6,108)
|
Deferred
income tax overprovided in previous years
|
-
|
(4,553)
|
Put
option closed prior to maturity
|
-
|
(4,105)
|
Restatement
on tax value of fixed assets
|
(1,208)
|
-
|
Tax depreciation de-recognised
|
-
|
1,029
|
Changes
to future tax rates
|
-
|
5,082
|
Exchange
rate effect on tax value of assets and liabilities
|
(6,574)
|
1,034
|
Non-deductible asset disposals
|
1,688
|
3,229
|
Non-deductible/non-taxable foreign exchange gains
or losses
|
(9,402)
|
(5,491)
|
Inflationary
uplift of tax losses
|
(1,337)
|
(1,141)
|
IETU
in excess of income tax
|
-
|
249
|
Other
|
(2,558)
|
(1,208)
|
|
|
|
Tax
at the effective income tax rate of 26.7% (2009: 21.7%)
|
272,969
|
99,151
|
|
|
|
(c)
The movements in deferred income tax liabilities and assets are as follows:
|
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
|
|
|
Beginning balance
|
(110,581)
|
(88,234)
|
Income statement charge
|
(77,945)
|
(7,529)
|
Exchange difference
|
3,845
|
2,242
|
Others
|
2,453
|
-
|
Cash
flow hedges recycled to income statement
|
631
|
(9,531)
|
Revaluation
of derivatives used for cash flow hedges
|
(1,179)
|
(1,122)
|
Unrealised
gain on available-for-sale financial assets
|
(20,536)
|
(6,407)
|
|
|
|
Ending balance
|
(203,222)
|
(110,581)
|
|
|
|
Deferred
income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to the same
fiscal authority.
The amounts after
offset are as follows:
|
|
|
|
|
|
As at 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
|
|
|
Deferred income tax assets
|
14,226
|
9,363
|
Deferred income tax liabilities
|
(217,448)
|
(119,944)
|
|
|
|
Ending balance
|
(203,222)
|
(110,581)
|
|
|
|
The
amounts of deferred income tax assets and liabilities before offset as at 31
December 2010 and 2009 considering the nature of the temporary differences, are as follows:
|
|
|
|
|
|
|
As at 31 December
|
|
2010
|
|
|
(US$ thousands)
|
|
Assets
|
Liabilities
|
Net balance
|
|
|
|
|
Related party receivables
|
-
|
65,921
|
(65,921)
|
Other receivables
|
-
|
494
|
(494)
|
Inventories
|
10,178
|
-
|
10,178
|
Prepayments
|
-
|
735
|
(735)
|
Derivative
financial instruments including Silverstream contract
|
-
|
58,544
|
(58,544)
|
Property, plant and equipment
|
-
|
143,934
|
(143,934)
|
Operating liabilities
|
1,866
|
-
|
1,866
|
Other payables and provisions
|
10,523
|
-
|
10,523
|
Losses carried forward
|
52,735
|
-
|
52,735
|
Post-employment benefits
|
1,767
|
-
|
1,767
|
Deductible profit sharing
|
11,862
|
-
|
11,862
|
Available-for-sale financial assets
|
-
|
21,246
|
(21,246)
|
Other
|
-
|
1,279
|
(1,279)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax balances
|
88,931
|
292,153
|
(203,222)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December
|
|
2009
|
|
|
(US$ thousands)
|
|
Assets
|
Liabilities
|
Net balance
|
|
|
|
|
Related party receivables
|
-
|
36,921
|
(36,921)
|
Other receivables
|
50
|
-
|
50
|
Inventories
|
8,098
|
-
|
8,098
|
Prepayments
|
-
|
590
|
(590)
|
Derivative
financial instruments including Silverstream contract
|
-
|
16,562
|
(16,562)
|
Property, plant and equipment
|
-
|
129,205
|
(129,205)
|
Operating liabilities
|
1,551
|
-
|
1,551
|
Other payables and provisions
|
10,310
|
-
|
10,310
|
Losses carried forward
|
46,616
|
-
|
46,616
|
Post-employment benefits
|
1,627
|
-
|
1,627
|
Deductible profit sharing
|
7,673
|
-
|
7,673
|
Available-for-sale financial assets
|
-
|
711
|
(711)
|
Other
|
-
|
2,217
|
(2,217)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax balances
|
75,925
|
186,506
|
(110,581)
|
|
|
|
|
|
|
|
|
|
|
|
|
A
deferred tax asset has been recognised in respect of tax losses amounting to
US$188.3 million (2009: US$166.5 million). There are no unrecognised tax assets
in either year.
(d) Unrecognised deferred tax on investments in subsidiaries
The
Group has not recognised all of the deferred tax liability in respect of
distributable reserves of its subsidiaries because it controls them and only
part of the temporary differences are expected to reverse in the foreseeable
future. The temporary differences for which a deferred tax liability has not
been recognised aggregate to US$503.5 million (2009: US$184.3 million).
Income
Tax ("Impuesto Sobre la Renta" or "ISR") and Business Flat
Tax ("Impuesto Empresarial a Tasa Unica" or "IETU")
In
accordance to the Mexican tax law, the Group companies in Mexico are subject to
Income Tax ("ISR") and Business Flat Tax ("IETU"). IETU is
an alternative minimum corporate income tax effective in January 1, 2008 which
replaced the business asset tax as a minimum tax. Companies are required to pay
the greater of their mainstream corporate income tax liability for the year or
their liability to IETU.
On
7th December 2009 new temporary tax rates were published in the
Official Daily of the Federal Government. The income tax rate for 2009 was 28%,
for 2010 is 30% and will continue in effect in 2011 and 2012, the tax rate for
2013 will be 29% and the tax rate from 2014 will be 28%. The deferred taxes
have been calculated at the rate applicable to the year the amounts are
expected to materialise. IETU is calculated at the rate of 17% for the calendar
year 2009 and 17.5% for subsequent years and applies to the sale of goods,
rendering of independent services and temporary use or enjoyment of goods. In
calculating the charge to IETU, deductions are allowed for certain expenses
incurred in generating income.
In
respect of the Group, in 2009 management undertook calculations to determine
the impact of the new IETU provisions on the Group. As a result of such analysis,
management concluded that there was no material impact on the Group, other than
the US$6.1 million tax credit arising under IETU that was recognised in 2009,
since the mainstream corporate income tax liability for each group company was
forecast to be greater than the future potential IETU charge. These conditions
continued in 2010, accordingly, no IETU liability was recognised in either year
7
Earnings per share
Earnings
per share ('EPS') is calculated by dividing profit for the year attributable to
equity shareholders of the Company by the weighted average number of ordinary
shares in issue during the period.
The
company has no dilutive potential ordinary shares.
As
of 31 December 2010 and 2009, earnings per share have been calculated as
follows:
|
Year ended 31 December
|
|
|
2010
|
2009
|
|
Earnings:
Profit
from continuing operations attributable to equity holders of the Company (US$
thousands)
Adjusted
profit from continuing operations attributable to equity holders of the
Company (US$ thousands)
|
665,126
530,838
|
322,011
308,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
profit is profit as disclosed in the Consolidated Income Statement adjusted to
exclude revaluation effects of the Silverstream contract of US$191.8 million
gain (US$134.3 million net of tax) (2009: US$ 19.4 million and US$ 14.0 million
net of tax).
Adjusted
earnings per share have been provided in order to provide a measure of the
underlying performance of the Group, prior to the revaluation effects of the
Silverstream contract, a derivative financial instrument.
Number
of shares:
Weighted
average number of ordinary shares in issue (ooo)
|
717,160
|
717,160
|
Earnings
per share:
Basic
and diluted earnings per share (US$)
Adjusted
basic and diluted earnings per ordinary share from continuing operations
(US$)
|
0.927
0.740
|
0.449
0.430
|
8
Silverstream contract
On
31 December 2007, the Group entered into an agreement with Pe oles through
which it is entitled to receive the proceeds received by the Pe oles Group in
respect of the refined silver sold from the Sabinas Mine ("Sabinas"),
a base metals mine owned and operated by the Pe oles Group, for an upfront
payment of US$350 million. In addition, a per ounce cash payment of $2.00 in
years 1 to 5 and $5.00 thereafter (subject to an inflationary adjustment
commencing on 31 December 2013) is payable to Pe oles. Under the contract, the
Group has the option to receive a net cash settlement from Pe oles attributable
to the silver produced and sold from Sabinas, to take delivery of an equivalent
amount of refined silver or to receive settlement in the form of both cash and
silver. If, by 31 December 2032, the amount of silver produced by Sabinas is
less than 60 million ounces, a further payment is due from Pe oles of US$1 per
ounce of shortfall.
The
Silverstream contract represents a derivative financial instrument which has
been recorded at fair value and classified within non-current and current
assets as appropriate. Changes in the contract's fair value, other than those
represented by the realisation of the asset through the receipt of either cash
or refined silver, are charged or credited to the income statement. In the year
ended 31 December 2010 total proceeds received were US$55.6 million (2009:
US$39.0 million), corresponding to 3.1 million ounces of payable silver (2009:
3.0 million ounces). As at 31 December 2010, a further US$7.2 million (2009:
US$nil) of cash corresponding to 265,331 ounces of silver is due.
The
valuation of the Silverstream contract as a derivative financial instrument
requires significant estimation by management. The derivative has a term of
over 20 years and the value of this derivative is determined using a number of
estimates, including the ore reserves and mineral resources and future
production profile of the Sabinas mine, the estimated recoveries of silver from
ore mined, estimates of the future price of silver and the discount rate used
to discount future cash flows. Expectations of future silver price is one of
the key assumptions underlying the valuation of this contract and the
strengthening of forward silver prices in 2010 significantly impacted the
valuation, resulting in an unrealised pre-tax gain of US$191.8 million
recognised in the Income Statement (2009: US$19.4 million). The fair value of
this contract is $427.6 million as at 31 December 2010 (2009: US$298.6 million)
and changes in the underlying assumptions may change this value. A future
downturn in the forward price of silver, which may happen given the cyclical
nature of prices, would result in recognising an unrealised loss in the income
statement.
A
reconciliation of the beginning balance to the ending balance is shown below
|
|
|
2010
|
2009
|
|
(US$ thousands)
|
Balance at 1 January:
|
298,659
|
318,268
|
Cash received
|
(55,623)
|
(39,010)
|
Cash receivable
|
(7,195)
|
-
|
Remeasurement
gains recognised in profit and loss
|
191,840
|
19,401
|
Balance at 31 December
|
427,681
|
298,659
|
Future
silver price is one of the inputs to the Silverstream valuation model. The
following table demonstrates the sensitivity of the Silverstream contract
valuation to a reasonably possible change in future silver prices, with all
other inputs to the Silverstream valuation model held constant. It is assumed
that the same percentage change in silver price is applied to all applicable
periods in the valuation model.
Year ended 31 December
|
Increase/
(decrease) in silver price
|
Effect
on fair value: increase/(decrease)
(US$ thousands)
|
2010
|
25%
|
120,165
|
|
(25%)
|
(120,165)
|
2009
|
15%
|
51,523
|
|
(15%)
|
(51,523)
|
9
Related party balances and transactions
The
Group had the following related party transactions during the years ended 31
December 2010 and 2009 and balances as at 31 December 2010 and 2009.
Related
parties are those entities owned or controlled by the ultimate controlling
party, those who have a minority participation in Group companies, and key
management personnel of the Group.
(a)
Related party accounts receivable and payable
|
|
|
|
|
|
|
|
Accounts Receivable
|
Accounts Payable
|
|
As at 31 December
|
As at 31 December
|
|
2010
|
2009
|
2010
|
2009
|
|
(US$ thousands)
|
Trade:
|
|
|
|
|
Met-Mex Pe oles, S.A. de C.V.
|
188,548
|
89,391
|
-
|
-
|
Other receivables:
|
|
|
|
|
Industrias Pe oles, S.A. de C.V.
|
|
|
|
|
|
|
|
|
|
Sub-total
|
195,743
|
89,825
|
2,323
|
375
|
Less-Current portion
|
195,743
|
89,825
|
2,323
|
375
|
|
|
|
|
|
Non-current portion
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
party accounts receivable and payable will be settled in cash.
Other
balances with related parties:
|
Year ended 31 December
|
|
|
|
|
|
2010
|
2009
|
|
(US$ thousands)
|
Silverstream contract:
|
|
|
Industrias Pe oles, S.A.B. de C.V.
|
427,681
|
298,659
|
|
|
|
|
|
|
|
|
|
The
Silverstream contract can be settled in either silver or cash. Details of the
Silverstream contract are provided in note 8.
(b)
Principal transactions with affiliates, including Industrias Pe oles S.A.B de
C.V., the Company's parent, are as follows:
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
Income:
|
|
|
Sales:(1)
|
|
|
Met-Mex Pe oles, S.A. de C.V.
|
1,397,399
|
821,578
|
|
|
|
Other income
|
860
|
659
|
-
|
|
|
Total income
|
1,398,259
|
822,237
|
|
|
|
|
|
|
|
|
(1)
Figures do not include hedging losses.
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
Expenses:
|
|
|
Administrative services:
|
|
|
Servicios Administrativos Pe oles, S.A. de C.V.
|
29,832
|
30,308
|
Servicios de Exploraci n, S.A. de C.V.
|
2,781
|
1,678
|
|
|
|
|
32,613
|
31,986
|
|
|
|
|
|
|
Energy:
|
|
|
Termoelectrica Pe oles, S. de R.L. de C.V.
|
26,074
|
17,785
|
|
|
|
Operating
materials and spare parts:
|
|
|
Wideco Inc
|
3,747
|
2,977
|
|
|
|
Equipment
repair and administrative services:
|
|
|
Serviminas, S.A. de C.V.
|
3,538
|
2,427
|
Met-Mex Pe oles, S.A. de C.V.
|
2,223
|
1,563
|
|
|
|
|
5,761
|
3,990
|
|
|
|
Other expenses:
|
11,485
|
8,366
|
|
|
|
Total expenses
|
79,680
|
65,104
|
|
|
|
|
|
|
|
|
(c)
Compensation of key management personnel of the Group
Key
management personnel include the members of the Board of Directors and the
Executive Committee who receive remuneration.
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
Salaries and bonuses
|
3,716
|
3,624
|
|
Post-employment pension
|
59
|
78
|
|
Other benefits
|
615
|
562
|
|
|
|
|
|
Total
compensation paid to key management personnel
|
4,331
|
4,186
|
|
|
|
|
|
Year ended 31 December
|
|
2010
|
2009
|
|
(US$ thousands)
|
|
|
Accumulated
accrued defined pension entitlement
|
14,528
|
13,230
|
The
accumulated accrued defined pension entitlement represents benefits accrued at
the time the benefits were frozen. There are no further benefits accruing under
the defined benefit scheme in respect of current services.
10
Notes to the Consolidated Cash Flow Statement
|
|
|
|
|
|
Notes
|
Year ended 31 December
|
|
|
2010
|
2009
|
|
|
(US$ thousands)
|
Reconciliation
of profit for the year to net cash generated from operating activities
|
|
|
|
Profit for the year
|
|
749,398
|
358,267
|
Adjustments
to reconcile profit for the period to net cash inflows from operating
activities:
|
|
|
|
Depreciation
|
5
|
105,216
|
67,227
|
Employee profit sharing
|
|
38,404
|
24,981
|
Deferred income tax
|
6
|
77,945
|
7,529
|
Current income tax expense
|
6
|
195,024
|
91,622
|
Loss
on the sale of property, plant and equipment and other assets
|
|
754
|
144
|
Other expenses
|
|
10,695
|
485
|
Net finance costs
|
|
397
|
237
|
Foreign exchange gain
|
|
(1,801)
|
(9,498)
|
Difference
between pension contributions paid and amounts recognised in the income
statement
|
|
254
|
2,174
|
Non cash movement on derivatives
|
|
(801)
|
25,018
|
Changes
in fair value of Silverstream
|
8
|
(191,840)
|
(19,401)
|
Working capital adjustments
|
|
|
|
Increase
in trade and other receivables
|
|
(147,220)
|
(50,495)
|
(Increase)/decrease
in prepayments and other assets
|
|
(3,303)
|
1,643
|
(Increase)/decrease in inventories
|
|
(29,309)
|
4,856
|
Increase
in trade and other payables
|
|
13,865
|
6,162
|
|
|
|
|
Cash generated from operations
|
|
817,678
|
510,951
|
Income tax paid
|
|
(90,380)
|
(102,347)
|
Employee profit sharing paid
|
|
(26,599)
|
(17,892)
|
|
|
|
|
Net
cash from operating activities
|
|
700,699
|
390,712
|
|
|
|
|
|
|
|
|
|
|
Risk
Management Framework
The Fresnillo plc
Board of Directors has overall responsibility for the Group's system of
internal control, which includes risk management. Responsibility for reviewing
the effectiveness of this control has been delegated to the Audit Committee,
which reviews these systems on an ongoing basis. Internal Audit supports the
Audit Committee through regular reviews of internal controls. Operational
responsibility for managing risk and maintaining the Group's system of internal
control is assumed by executive management, and carried out at the corporate
and operations level by the risk owners.
The Group has
established a process for identifying, evaluating and managing the significant
risks faced by the Group in accordance with the Turnbull Guidance. Because of the
limitations inherent in any system of internal control, this system is designed
to meet the Group's particular needs and the risks to which we are exposed. It
is designed to manage and mitigate risk. Consequently it can only provide
reasonable and not absolute assurance against material misstatement or loss.
Our risk
assessment process is dynamic and ongoing: as the macro environment changes and
country- and industry-specific circumstances evolve, new risks may arise and
others recede. Similarly, the ranking of these risks, based on probability and
severity, may fluctuate. For the 2010 assessment, the Company's executives and
operations managers identified a universe of 115 risks through a survey. From
these, we narrowed down the top 15 risks across a number of categories based on
likelihood and impact.
While
the top risks did not change in 2010, some of their rankings did.
Specifically,
gold and silver prices have trended upwards for nine years and in 2010 reached
their highest level in 30 years. Given the cyclical nature of precious metal
prices we believe that the associated risk of downward pricing pressure has
increased. This is particularly relevant given the Group's policy not to hedge
price exposure on silver and gold realisations.
With
higher metal prices, profit margins in the mining industry have also expanded,
increasing the likelihood of a new mining royalty or tax.
Security
risk also increased as a result of escalating violence, including robbery and
kidnapping in the central and northern states of the country where the Group
has operations. This risk has simultaneously affected the controls associated
with the use, transportation and storage of explosives, which are overseen very
closely by the defence authorities.
To
support the expansion of the exploration programme and new mining projects
under construction, the Group has added additional contractors, some of whom do
not have experience with the Group's operations. This raises the risk of safety
and environmental issues due to insufficient training or adherence to Group
procedures.
Conversely,
the risk associated with internal union conflicts decreased following elections
held in December 2010 which allowed workers for the first time to select the
union of their choice.
Among the
remaining risks in the full risk universe, certain rankings and assessments
were also modified due to changes in the business environment and/or the
implementation of controls and mitigation.
In anticipation
of reporting requirements for 2011 (UK Corporate Governance Code), the Board
has initiated a process to quantify its risk tolerance and risk appetite in
pursuit of the Group's strategic objectives. Furthermore, in advance of
Bribery Act compliance requirements, the Group identified those risks directly
related to bribery and corruption; while they are not among the top 15 risks
described below, specific control and mitigation measures are in the process of
development and implementation.
While
the nature of the risks and uncertainties the Group faces are likely to remain
similar from year to year, mitigation and control measures will be mapped
against the Board's risk statement to ensure full alignment at the operations
level.
Principal Risk and Uncertainties
STRATEGIC
|
Risk
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Mitigation / Control
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Depletion of reserves at existing mines, combined with
no new mineral deposits identified, which would impact the Group's growth
projections and production capabilities
|
Highly trained and
experienced exploration team
Investment in the
Group's exploration programme almost doubled in 2010 and will continue to
increase for regional properties and areas of influence
Use of technology
to enhance probability of finding resources
Pipeline of
projects across multiple stages of exploration
|
Delays in securing land access for performing exploration/mining
activities, caused by complex or unsuccessful negotiations with ejidos
(cooperative landowners) that could delay or interrupt the exploration
activities
|
Engagement with
government agencies and communities
Retaining
specialised negotiators
Purchases of
surface land at and near our projects at an early stage
|
Security related risks such as cartel activity, kidnapping
and theft, which continued to increase in Mexico over the past year, could
cause business interruptions resulting from their impact on personnel and
property; while the Group, its employees, contractors and facilities are not
necessarily specific targets, security issues have become pervasive in many
parts of the country
|
Enhanced security
and surveillance measures
Greater prudence
regarding ground transportation arrangements for people and goods
|
Finding and/or retaining personnel with the requisite knowledge,
skills and experiences for key positions, particularly when competition for
such personnel increases during periods of expansion in the mining industry
|
Benchmarking
information on compensation and employment supplied annually by external
advisors
Competitive
remuneration structure sought against domestic and international peer group
Talent
identification plan deployed; training linked to a succession plan and career
development
Ongoing recruitment strategy
|
Internal union conflicts at the national level may cause
temporary stoppages or disrupt operations, even when the source of those
conflicts is not related to local labour contracts and/or working conditions
at the Company
|
Close communication
with union leaders at both the local and national level
Efforts to broaden
the base of support among unionised workers, including outreach to key
influencers
Annual contract
negotiations approached in cooperative manner with aim of retaining mutually
beneficial contract terms
|
OPERATIONAL
|
Risk
|
Mitigation / Control
|
Lower ore grade associated with the natural life of the
mines could impact production programmes
|
Expand capacity so
that production volumes offset lower grades, for example by adding flotation
areas, optimising milling capacity and constructing new leaching pads
Implement
efficiency measure that enhance production volume, such as optimising
recoveries at plants and dilution control efforts
Increase in-mine exploration
|
Difficulty
in obtaining permits from Mexico's Secretariat of National Defence for the use
of explosives, due to the aforementioned security risks that have
increased the military's control and management of explosives, which could
impact operational continuity
|
Engagement with the
military, close communication with authorities and training of fire brigades
Compliance with procedures for
reception, storage, transportation, delivery and use of explosives; enhanced inventory
audits
Rigorous onsite
discipline to comply with regulations
|
Sourcing critical equipment and strategic spare parts to meet
operational needs, due to long production and delivery timeframes, as well as
shortages caused by competition for such parts could affect operational
continuity
|
Strategic stocking
programme maintains key parts in inventory
Long term contracts
with key equipment suppliers, including efforts in 2010 to negotiate
three-year agreements
Maintenance planning
|
Price escalation of key operating materials due to
competitive demand and reliance on third party suppliers could impact cash
costs and profitability
|
Ongoing focus on
productivity and efficiency (lower per unit consumption)
Long term
procurement contracts with key operating materials suppliers
|
Expensive or insufficient energy supplied by CFE, the state-run
electric utility, to meet demands of mining operations, , which could impact
operational continuity, cash costs and profitability
|
Ongoing focus on
energy efficiency
Close communication
with CFE
Directly or
indirectly participating in energy self-supply programs
|
Accidents or unintended events caused by the Company that may
disrupt operations from a civil or legal perspective or have negative
reputational effects
|
Systems, equipment
and procedures to enforce controls for the Group's HSECR System, backed by
Internal Audit reviews
Live drill training
for emergencies and contingencies, including annual participation in the
national Mine Rescue Team Competition organised by CAMIMEX (Mexican Mining
Chamber) and fire brigade training in the United States.
Liability insurance
|
FINANCIAL
|
Risk
|
Mitigation / Control
|
Volatility
in silver and gold prices that could impact the realised
prices of the Group's production output, and in exchange rates that could impact
peso-denominated production costs when converted into dollars
|
The Group has
committed to a policy of not hedging exposure to silver and gold realisations
to allow investors full exposure to prices
Selective hedging
of MXN/US$ exchange rates
|
Changes in tax law and/or mining royalty schemes, at the state and
federal level, that could impact the Group's financial
performance; in 2010 there was increased interest in such measures due to
record metal prices and governmental budget constraints
|
Leveraging our
leadership position within CAMIMEX to promote a fair balance between fiscal
obligations and investments in growth
|
COMPLIANCE
|
Risk
|
Mitigation / Control
|
Failure to comply with environmental, health and safety regulations that could disrupt
operations, lead to financial and legal penalties and/or terminate the
Company's mining licences
|
Systems, equipment
and procedures to enforce controls for the Group's HSECR System
In 2010 enhanced
infrastructure for the storage and signage of hazardous materials was
developed
Zero tolerance
programme for dangerous conditions
Ongoing training
and investment, including specialised onsite workshops following the 2010
fatalities
|
External
pressure (from NGOs, political groups and others) for more regulation to
the mining industry in Mexico, which could increase our regulatory burden
|
Leveraging our
leadership position within CAMIMEX to promote fair regulations
Promote pro-mining NGOs
|
Annual Report and Accounts 2010
Fresnillo plc
will publish on or around 12 April 2011 its Annual Report and Accounts for the
year ended 31 December 2010 on its corporate website www.fresnilloplc.com and
intends to distribute copies to shareholders at the same time.
[1] Adjusted revenue is revenue as
disclosed in the income statement adjusted to exclude hedging effects and
treatment and refining charges.
[2] Earnings before
interest, taxes, depreciation and amortization (EBITDA) is calculated as gross
profit plus depreciation less administrative and exploration expenses.
[3] Profit from continuing
operations before net finance costs and income tax.
[4] Adjusted basic and
diluted earnings per ordinary share from continuing operations, prior to the
revaluation effects of the Silverstream contract.
This information is provided by RNS
The
company news service from the London Stock Exchange
END
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Fresnillo Ltd.
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PRODUCER |
CODE : FRES.L |
ISIN : GB00B2QPKJ12 |
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ProfileMarket IndicatorsVALUE : Projects & res.Press releasesAnnual reportRISK : Asset profileContact Cpy |
Fresnillo is a zinc and lead producing company based in Mexico. Fresnillo produces zinc, lead, copper, gold, lead and silver in Mexico, develops gold and silver in Mexico. Its main assets in production are CIÉNEGA, HERRADURA, FRESNILLO, SABINAS, SOLEDAD & DIPOLOS, ORISYVO and SAN JUAN - FRESNILLO in Mexico, its main asset in development is SAUCITO in Mexico and its main exploration properties are SAN JULIAN - FRESNILLO, JUANICIPIO and NOCHE BUENA in Mexico. Fresnillo is listed in United Kingdom. Its market capitalisation is GBX 346.1 billions as of today (US$ 414.0 billions, € 362.7 billions). Its stock quote reached its highest recent level on July 17, 2020 at GBX 998.60, and its lowest recent point on March 28, 2024 at GBX 469.90. Fresnillo has 736 500 000 shares outstanding. |
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