Fresnillo’s 2018 silver output hit record high, to be lower this year

Shares in Mexico-focused precious metals miner Fresnillo (LON:FRES) took a hit Wednesday after the company said it expected a decline in silver output in 2019.

The company, which is the world's largest primary silver producer and Mexico's No.2 gold miner, posted record silver production, and strong gold output in 2018, despite it being a “challenging year” for the company.

Delivering production figures for the three months and full year ended in December, the miner said annual silver production was 61.8 million ounces, up 5.3% on 2017, thanks mainly to the first full year of operations at San Julián.

Fresnillo said it was taking action to address lower than expected ore grades at its Fresnillo and Saucito mines, which persisted in the final quarter of 2018.

Quarterly production of the grey metal, however, remained flat compared to the third-quarter of 2018 and down 3.2% year-on-year due to lower volumes of ore processed and ore grade at both Fresnillo and Saucito mines.

The company churned out 923,000 ounces of gold last year, up 1.3% from 2017, due mainly to higher ore grade and recovery rate at Saucito, the contribution of the new Pyrites plant at that mine and higher ore grade at Fresnillo.

“Record annual silver production and a very strong gold performance does not mask what was a challenging year for Fresnillo,” chief executive officer Octavio Alvídrez said in the statement. “We are taking action to address [the lower than expected ore grades at the Fresnillo and Saucito mines which have persisted into the final quarter], not least by intensifying our infill drilling programmes, controlling dilution and further investment in equipment and infrastructure,” he added.

Looking ahead, Fresnillo said it expects silver production this year to be between 58 million and 61 million ounces, which would represent a slight fall on that achieved in 2018. Gold production is anticipated to be flat year-on-year, in the range of 910,000 to 930,00 ounces.

The company said it will have an exploration budget this year of $140 million, including capitalized exploration expenses.

“While 2018 was a challenging year at Fresnillo, we remain both confident and determined we will return the mine to the positive trend seen in previous years,” Alvídrez said.

Shares in the company were down 1.2% in London at 901.67 pence each on Wednesday by 2:53pm. They had hit a low of 892.20p at 8:10 am local time.