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Mixed Fortunes For Fresnillo plc As Litigation Slows Gold Production

The shares of Fresnillo (LSE: FRES) dropped 3% to 752p this morning after the company revealed mixed production results.

Fresnillo, the FTSE 100 miner, confirmed a 4.3% rise in annual silver production of 43 million ounces for the quarter ended 31 December. This is slightly ahead of guidance, which was 41 million ounces.

The gain was partly driven by better than expected performance from Saucito in Mexico, where the rich Jarillas vein contributed higher ore grades.

Gold output on the other hand dropped 10% year on year to 426,000 ounces, attributable to lower production volumes at Soledad-Dipolos, where a court order put a stop to operations. The litigation stems from a dispute with the local community who claim rights to the land at the Diplos gold mine. The halt to production is expected to continue throughout 2014.

Fresnillo added that the constriction of the dynamic leaching plant at Herradura was completed on schedule and will start up as soon as ore from the mine is available. The plant is forecast to increase gold production by 412,000 ounces between 2013-2020.

Octavio Alvídrez, Fresnillo’s chief executive, had the following to say:

“The second half of 2013 was challenging, with the Ejido El Bajío conflict impacting annual gold production at the Penmont mines. Nevertheless, we are pleased that we achieved silver production of 42.7 million ounces in 2013, including the Silverstream production volumes ahead of our original 2013 guidance. We will maintain similar levels of silver production in 2014.”

“Over the course of 2013 we continued to focus on operational excellence at each of our operations and to develop our growth projects to meet our long-term production targets and increase our resource base. We are confident that 2014 will see us continue on our path of sustainable and profitable growth.”

With a market cap of £5.7 billion Fresnillo shares trade at 18 times expected earnings and offer a prospective dividend yield of 3%. 

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> Mark does not own shares in Fresnillo.