Fresnillo Net Profit Falls, Cuts Dividend, Capex--Update

By Alex MacDonald

LONDON--Precious-metals producer Fresnillo PLC (FRES.LN) Tuesday reported a fall in first-half net profit, slashed its dividend payout, and said it would reduce capital expenditure as the Mexican miner grapples with falling gold and silver prices.

Fresnillo, the world's largest primary silver producer and Mexico's second-largest gold producer, reported a 41% drop in net profit of $76.5 million in the six months to end-June on higher exploration and administrative expenses and a currency-related loss of $15.6 million.

They more than offset an 11% revenue rise to $752 million following an 11% increase in attributable silver production, including silver from its Silverstream supply contract, to 23.8 million ounces, and a 37% rise in gold output to 364,020 ounces during the period.

Revenue rose despite gold and silver falling to multi-year lows in the first half of the year. Precious metals have fallen amid an exodus of money into other assets classes as investors brace for an expected rise in U.S. interest rates.

Fresnillo said it would cut is capital expenditure to $570 million for this year from $700 million previously.

The FTSE-100 miner also declared an interim dividend of $0.021 a share, down 58% from 0.05 a share in the same period a year before.

The miner reaffirmed its new 2015 gold production forecast of between 715,000 and 730,000 ounces, up roughly 7% from 670,000 to 685,000 ounces previously. Meanwhile silver production remains on track to reach 45 million to 47 million ounces this year, including output from Fresnillo's Silverstream contract.

The company said that the commissioning of its $515 million stage 1 San Julián project has been delayed by a quarter from the fourth quarter of this year, citing delays in securing the necessary permits, poor weather, and a rotation of contractors. The project is forecast to average 10.3 millionounces of silver and 44,000 ounces of gold output a year once it hits full production in 2017.

Fresnillo said its $115 million Pyrites project remains on track to start production in 2017. That project could increase annual production by 3.5 million ounces of silver and 13,000 ounces of gold.

The company also said that it has had encouraging results from recent drilling at its Ciénega and Juanicipio projects.

Fresnillo's shares were up 0.6% at 637 pence a share as of 0830 GMT. Numis Securities analysts said the results were decent despite mixed news on the miner's development projects.

-Write to Alex MacDonald at [e-mail]

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