Fresnillo shares plunge as profits fall short despite precious metals prices rally

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 mines 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 on the FTSE 100.