Fresnillo Reaffirms Output Guidance; San Julian Expansion Delayed--Update

By Alex MacDonald

LONDON--Mexican precious-metals producer Fresnillo PLC (FRES.LN) on Wednesday reported higher third quarter gold and silver output and reaffirmed its full-year output guidance but said the completion of its San Julian expansion project has been delayed due to heavy rain and other factors that slowed construction work.

The U.K.-listed business, the world's largest primary silver producer and Mexico's second-largest gold producer, reported a 6.7% rise in silver production, including output from the Silverstream contract, to 11.8 million ounces for the three months ended Sept. 30, 2016 compared with the same quarter the year before.

This was mainly due to the start-up of the first phase of San Julian expansion project, increased ore processed at the Saucito mine and an increased contribution from the Silverstream contract. Silver output, however, fell 9.4% compared with the second quarter due to lower ore grades at the Saucito mine and reduced equipment availability due to recurring maintenance issues and a "temporary shortage" of skilled workers at the Fresnillo mine.

Fresnillo's shares were down 2% at 1,612 pence a share as of 0944 GMT.

Meanwhile gold production rose 21% to 220,000 troy ounces in the third quarter compared with the same period a year before due to higher volumes and grades at both its Herradura and Noche Buena mines.

This means Fresnillo has produced 37 million ounces of silver and 667,000 ounces of gold during the first nine months of the year, up 6.3% and 22% respectively compared with the same period a year earlier.

Looking ahead, the company reaffirmed plans to produce between 850,000 and 870,000 ounces of gold this year, up from its previous guidance of between 775,000 and 790,000 ounces. It also reaffirmed its silver production guidance of between 49 million and 51 million ounces, including production from the Silverstream contract.

"The turnaround plan at Fresnillo continues to progress, although not at the pace at which we had originally planned," said Fresnillo Chief Executive Octavio Alvidrez. "We continue to expect an increase in silver grades and production for the full year compared to 2015, however, recently volumes processed have come under pressure as a result of some equipment availability and personnel issues," he said.

At the San Julian mine, the first phase of the expansion project has been operating normally since August while the second phase is now forecast to commission in the second quarter rather than the end of 2016. This is due to unusually heavy rainfall, high rotation of construction workers, security incidents and equipment delivery delays that resulted in slower progress.

Fresnillo is investing $515 million into the San Julián silver-gold project, which aims to produce 10.3 million ounces of silver and 44,000 ounces of gold annually once phase 2 is commissioned and it reaches full production capacity.

-Write to Alex MacDonald at [e-mail]

(END) Dow Jones Newswires

October 12, 2016 06:12 ET (10:12 GMT)

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