Shares in Mexico-focused precious metals miner Fresnillo (LON:FRES) hit a three-year low on Tuesday after it reported half-year results that fell short of market expectations.
The company, which is the world’s
largest primary silver producer and Mexico’s second largest gold miner, said
core earnings fell 46% to $308 million in the six months to June, significantly
worse than the 20% drop estimated by analysts.
Operational setbacks, lower-quality ore and rising costs at its Mexican operations were the main causes of the poor performance, said the company, which had recently anticipated the impact of such complications.
Silver production fell 10.4% to 27.6 million ounces in the first half of the year, while gold output dropped by 7.1%. Fresnillo’s cost of sales rose 30% to $796 million.
Operational setbacks, lower-quality ore and rising costs at its Mmines were the main causes of the poor performance, said the company.
The company noted its two main silver mines, Saucito and Fresnillo, will continue facing challenges. Fresnillo needs about 18 months to stabilize operations, chief executive Octavio Alvídrez told reporters on a conference call.
Precious metals, in contrast, are selling
a high prices as investors seek refuge in safe havens amid worries about the
China-US trade war and expectations that the Federal Reserves will lower
interest rates.
The price of silver, as measured by
futures contracts traded on the New York Mercantile Exchange, has surged by 15%
since late May. This may be a sign that gold’s impressive rally over the past
year — its price has gone up 16%, compared with roughly 6% for the S&P 500 —
is finally spreading to other precious metals.
Earlier this month, Fresnillo cut
its 2019 gold production forecast to 880,000-910,000 ounces, against a previous
estimate of 910,000-930,000 ounces and silver production to 55-58 million
ounces from 58 to 61 million.
The company, one of the 100
business with the highest market capitalization listed on the London Stock
Exchange, maintained its revised guidance, but said it would reduce capital
expenditure to $655 million, below its previous forecast of $710 million.
It also noted that it was hopeful earnings
in the second half of this year would improve given higher gold and silver
prices, and cost cutting.
Fresnillo, which floated in London
in 2008, is 75% owned by Mexican billionaire Alberto Bailleres. The
company’s flagship mine is Saucito, the world’s largest silver operation.
The miner’s shares were down 13% to
693.4 pence mid-morning in London, their lowest point since February 2016. The
company was also the second-biggest loser in the FTSE 100.