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Fresnillo Plc Plunges Following 68% Dividend Cut

Shares in Fresnillo (LSE: FRES) fell by more than 8% in early trade this morning, after it was hit by tumbling gold and silver prices.

In its interim results, the miner warned that total gross profits decreased 27% from $710.9m in the first half of 2012 to $518.9m for the six months to 30 June 2013, while adjusted revenue fell 10.6% to $982.3m.

Partly, this was as a result of the average realised price for silver plunging 20.3% to $24.67 per oz, while average realised gold price dropped 10.6% to $1,471.67 per oz.

However, rising production costs “associated with higher volumes from the expanded business and higher electricity and diesel prices” also contributed to the loss of profits.

Following the bleak appraisal, management took the decision to cut the dividend by 68%, which drops down to $0.049 per share.

Chief executive officer Octavio Alvídrez commented:

 “Fresnillo enjoyed a strong operational performance in the first half, with attributable silver production up 6.9% (excluding the Silverstream). As Saucito continues to ramp up and the grades at Fresnillo move higher to more normal levels, we are on track to meet our 41 million ounces of silver target this year.  Our gold production target is 465,000 ounces for the year.

“The dramatic decline in gold and silver prices since mid April had a significant impact on revenues over the half year. This coupled with higher production costs… pushed EBITDA and profit lower. In light of this backdrop Fresnillo plc’s continued focus on cost cutting and operational efficiency remains more relevant than ever and we remain confident that our assets will continue to be amongst the lowest cost precious metals producers.  

“Our project pipeline and investment in exploration is critical to our success as a sustainable long term producer that generates free cash, creates value and can grow profitably in any metal price environment. Fresnillo has the assets, the discipline to control costs and the strong balance sheet to achieve that goal for the benefit of all stakeholders.”

The Group continues to have a very strong balance sheet with no bank debt and US$570 million in cash and cash equivalents as at 30 June. Some investors will be asking whether today’s dips represent a buying opportunity, bearing in mind the cyclical nature of miners.

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> Sam does not own shares in Fresnillo.