Fresnillo's 2013 profits hurt by lower gold output and metal prices - UPDATE

4th Mar 2014 07:10

- Profit and revenue decline- Results hurt by lower gold output and metal prices- Silver output ahead of expectations- Special dividend announcedMining giant Fresnillo reported a drop in 2013 profits and revenues, reflecting a decline in gold production and a fall in precious metal prices. The company's pre-tax profit came to $418.7m in the year through December, down 64.4% on 2012. Revenue tumbled 25.1% to $1.61bn and earnings before tax, interest, depreciation and amortisation (EBITDA) decreased 44.5% to $729.8m. Analysts had predicted EBITDA of $799m.The group said the most significant impact on performance last year was lower metal prices, edged gold fell 16.3% to an average of $1,400 per ounce and silver slumped 27.3% to $22.83 per ounce. The fall in prices prompted a review of exploration and capital expenditures to streamline operations and cut costs.As part of the restructuring, total investment in exploration for 2013 was reduced by 16.6% from the original budget to $233.3m with priority given to projects within existing mining districts and to those with the best mineral potential. "Following a comprehensive review of the company's current and future financial requirements, we believe our current balance sheet is well placed to meet the company's capital expenditure plans and positions us favourably to take advantage of potential accretive acquisition opportunities," said Chairman Alberto Baillères. Another factor weighing on results was a drop in gold production, which was disrupted by a legal dispute surrounding explosives permits at the Minera Penmont operations, and the non-cash loss generated by the Silverstream revaluation. Gold production edged down 10% to 425,831 ounces. It was mitigated slightly by a 4.3% increase in silver production to 42,743 ounces (ahead of management expectations as Sanlam Securities points out), boosted by the continued ramp up of Saucito and increased output at Ciénega.Looking ahead, Baillères said the portfolio of profitable mines and development projects is expected to yield returns despite a low metal price environment. With production issues resolved in early 2014, he also sees gold output gradually picking up.Fresnillo has recommended a special and one-off dividend of $50.1m, equivalent to 6.8 cents per share.Hard road ahead growing lowest cost productionCommenting on Fresnillo´s results analyst Charlie Long at Sanlam Securities highlighted that Fresnillo still trades on demanding earnings before interest, taxes, depreciation and amortisation (EBITDA) multiples (12 times 2015´s estimated earnings), despite the huge share price correction seen over the last 12 months or so.Long believes the shares will perform should the price of silver recover, but highlights how the firm is struggling to replace reserves; a function of being a very large producer with its best assets now deep and mature.RD