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Executives

Gabriela Mayor – Head, IR

Analysts

Anna Mulhalland – Deutsche Bank

Daniel Major – UBS

Arnold van Graan – CIBC

Cailey Barker – Numis Securities Ltd.

Daniel Ahn – Citigroup

Fresnillo Plc (OTCPK:FNLPF) Q1 2014 Production Report Call April 16, 2014 3:30 AM ET

Operator

And welcome to Fresnillo Analyst Investor First Quarter Production Report Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session (Operator Instructions) I must advice you that this conference is being recorded today 16, April 2014.

I would now like to hand the conference over to your speaker today Gabriela Mayor. Please go ahead.

Gabriela Mayor

Thank you. Good morning and thank you for joining this call for Fresnillo’s first quarter production report. My name is Gabriela Mayor and I’m Head of Investor Relations for Fresnillo Plc. I would like to just run through [appeal] of the key highlights for the period and then I would be happy to take your questions.

As you can see from our announcement today, we have made a solid start to the year with silver production of 10.4 million ounces including the Silverstream. This is an increase of 3.5% over the same period last year and reflects a continued growth performance at Saucito where development works for Saucito II resulted in an increase or throughput. This enabled us to offset lower our rates at Fresnillo.

While gold production was up almost 83,000 ounces was 29.7% lower than the first quarter, this is in line with expectations given the continued stoppage at Herradura during the first two months of the year. Indeed production is 9% higher than during the final quarter of 2013 as we have now resumed operations at Herradura following the granting of our new explosives permit. These also enabled us to begin commercial production from the dynamic leaching plant, which is already making a significant contribution.

We will continue to build our production at [Herradura] and return to normal capacity over the next few months. As a result, we remain fairly on track to exceed our target of 43 million silver ounces and attributable gold production of 450,000 ounces for 2014 as a whole.

And we are also on schedule over our development projects which will deliver longer term sustainable growth for the company. As we expect, our projects continues according to schedule and budget and we look forward to concluding construction before the end of the year. Once at full capacity, this will produce an additional 8.4 million ounces of silver and 35,000 ounces of gold a year.

We are also making good progress with the San Julián project where we have concluded the detailed design work as well as acquired additional land and received permits for construction of the water reservoir. And most pleasingly, we have carried out all these works safely with no further accidents over the quarter. This is always a priority and we recognize we cannot be complacent.

As a result, we continue to work on our joining programs and expecting behavioral changes across the group. So we are pleased with the start we have made to the year. We anticipate that conditions in the mining industry will remain challenging this year, but speaking to the consistent execution of our strategy, we believe that we can continue to make progress towards our short and long-term goals throughout the course of the rest of the year.

So now we would like to happy to take your questions. So operator can I have the first question please. Operator, can I have the first question please?

Question-and-Answer Session

Operator

We have a question from the line of Anna Mulhalland. Please ask your question.

Anna Mulhalland – Deutsche Bank

Hi, Gabriela. It’s Anna Mulhalland here from Deutsche Bank. Could you please give us a little bit of color and may be some guidance on the expected grades at both Ciénega and Noche Buena for the year. Obviously, for the first quarter at Ciénega on the gold side you got 6% decrease in the grade. I’m just wondering if you are expecting that 2.8 grams a ton to stay the sort of level for the rest of the year. And the same with Noche Buena but obviously, you had higher ore grades for the quarter I’m just wondering if you expect that to continue?

Gabriela Mayor

Yes. Hi, Anna. Well, we would just like to keep the guidance that we gave at the times of the preliminary announcement. In the presentation, we guided Ciénega to be – ore grade around 2 to 2.5 grams per ton of gold. And in terms of Noche Buena you are right, we were guiding 0.5 to 0.5, well, 0.53 grams per ton. So I will just stick to that to the conservative.

Anna Mulhalland – Deutsche Bank

Okay. Thank you.

Gabriela Mayor

Thank you, Anna.

Operator

Thank you. We have another question from the line of Daniel Major. Please ask your question.

Daniel Major – UBS

Hi, Gabriela. It’s Dan Major speaking. Couple of questions. Firstly, you kind of mentioned that the full year results surrounding the development issues at Fresnillo and so that’s been reflected in the weaker grade performance in the first quarter. Could you give us a bit more color on kind of what the sort of key issues surrounding the contractor relationships being and some sort of guidance on grade profile to achieve your slightly reduced guidance for the full year at Fresnillo?

Gabriela Mayor

Yes. Okay. So there were some temporary issues with some equipment used by just one of our four contractors that we have at Fresnillo. These were used for [stability] in the first quarter and of course, there were some delays at some of it and most productive areas of the mine and that’s the reason why we are working with these contractor to withheld these as soon as possible. We believe that this is going to still have an effect in the second quarter of the year. But, we expect the third and fourth quarters to be pretty in line with our expectations.

So as a result, we believe that we are going to be fine and we are going to be able to achieve our 0.3 million ounces of silver that were target for this year.

Daniel Major – UBS

So what is the production target Fresnillo for the full year?

Gabriela Mayor

Fresnillo is going to be around 24 million ounces of silver.

Daniel Major – UBS

Cool. Thanks very much. Just one other question, if I could just to follow up on – at the full year results you mentioned some security issues at the site of San Julián, was wondering if those sort of have been resolved and whether there are any sort of ongoing concerns surrounding kind of progress with the project?

Gabriela Mayor

No. We are finding San Julián, everything is progressing according to schedule. As I don’t use – there have been – we got the environmental permits and we have been concluding the design for the leaching plant. So everything is going according to schedule so no major delays here.

Daniel Major – UBS

Thanks very much.

Gabriela Mayor

Yes. Dan, just one comment. Just to be conservative Fresnillo production 23 million just to make sure.

Daniel Major – UBS

Okay. Sure.

Operator

Thank you. We have another question from the line of Arnold van Graan. Please ask your question.

Arnold van Graan – CIBC

Hi. Yes. Good morning Gabriela. Just a follow on question on the contractor issue. Could you please elaborate on the equipment issues they are experiencing. Is that as a result of maintenance issues, or is it as a result of aging fleet or supply chain issues or stuff like that?

So I was sort of like try and get a sense of what’s really causing these breakdowns and causing the delays there? Thank you.

Gabriela Mayor

Yes. It may cause very minor issues that they have with the maintenance. And it’s just because they have new administration under Seth Rollins. So we don’t really foresee that we are going to have further issues later in the year if we work together with them.

Arnold van Graan – CIBC

Perfect. Thank you very much.

Gabriela Mayor

Thank you, Arnold.

Operator

Thank you. We have another question from the line of [Colleen Li]. Please ask your question. Colleen Li, your line is open.

Unidentified Analyst

Yes. Hi. Sorry. Just wanted to check, I understand that you are reducing your exploration and CapEx based on the metal prices. So how would this impact production going forward. And what metal prices would you consider to revise your CapEx further on the outside?

Gabriela Mayor

Okay. So in terms of CapEx and exploration, we have reduced that a little bit. In terms of CapEx, we have moved the CapEx numbers for the following year. But nothing has changed dramatically since the drilling. We are continue to be investing in our growth projects most of all we could say we have very good internal rate of return. So we are going to stick to that.

And in terms of exploration, we are going to prioritize projects or prospects that we around our mining districts. But we will continue to be exploring during the rest of the year of course. And we will be updating during the interim results if we have any change in terms of further CapEx or exploration changes given the market volatility. But so far, this is what we are going to be having for the rest of the year.

Unidentified Analyst

Okay. Thank you.

Gabriela Mayor

Thank you.

Operator

Thank you. We have another question from the line of Cailey Barker. Please ask your question.

Cailey Barker – Numis Securities Ltd.

Hi, Gabriela. Yes. Just one quick follow up question for me just on the grade at Fresnillo. The run rates for the year is going to average at 270, but what grade do you hope to get up to maximum grade late during the year?

Gabriela Mayor

Hi, Cailey. I would just have to confirm that [indiscernible]. I believe that we will have to go 280, 285 approximately or let me just confirm that and I will give you a call.

Cailey Barker – Numis Securities Ltd.

Great. Okay. Thank you.

Gabriela Mayor

Thank you.

Operator

Thank you. And we have another question from the line of Daniel Ahn. Please ask your question.

Daniel Ahn – Citigroup

Hi. Good morning Gabriela. I have just got two questions. So firstly, do you mind us reminding of, how does you are able to comment on costs Herradura, obviously, we got a few moving parts this year with the resumption of mining plus explosive plan and also the commissioning of the dynamic leaching plant.

Also kind of dollar per ton cash cost follows of Herradura as we go through the year. And then secondly, you talked about the lower grades of the Fresnillo mine, it looks like those kind of partially offset by some higher recoveries and highest throughputs. Is that – there is kind of high recoveries and throughput rates sustainable for Fresnillo for the rest of the year?

Gabriela Mayor

Sorry. What’s your second question Daniel?

Daniel Ahn – Citigroup

It’s on Fresnillo. So you have the grade I can remember that was a temporary issue in – or temporary kind of increase in Q1 or recoveries in throughput will be maintained at high level throughout the rest of the year?

Gabriela Mayor

Okay. Yes. So in terms of Herradura and in cost, yes, we believe that we are going to still have some bad effect on productive cost as we have in the previous year in the second half of the year. And we will be guiding you close to the interim results. We don’t foresee, you know that we were guiding an inflation for the total – for the group as a total of 6.9% for the year.

Of course, we continue working on having or achieving some cost savings reductions between 3% to 5%. And in particular service at Herradura, we expect that to be perhaps lower than we have in the second half of 2013 in terms of cash cost because now we have resumed operations and now we have more production and of course, we are going to have more of a downfall. But we are going to see we have 6.9% inflation [indiscernible] by our cost reduction initiative.

In terms of Fresnillo, yes, you know that we have been trying to offset the lower rate with higher throughout and of course trying to improve the recovery rates and we will continue to do so in the remainder of the year. So that should be still be the case for the rest months or over the next months of the year.

Daniel Ahn – Citigroup

Okay, sure. Can I just follow up a bit on Herradura, I mean do you on the kind of the general inflation you see for the group presumably bringing on the dynamic leaching plant will kind of change your cost base a bit structurally. I mean what’s kind of the impact of bringing that plant on your operating costs?

Gabriela Mayor

Yes. I will just come back to you on that as we speak of number. So I will give you a call in the course of the evening.

Daniel Ahn – Citigroup

Gabriela, thank you.

Gabriela Mayor

Thank you, bye.

Operator

We have no other question at the moment. (Operator Instructions) We have no other question for the moment. Please continue.

Gabriela Mayor

Okay. Thank you, operator and thank you everybody for dialing in. Have a nice day.

Operator

So that does conclude our conference for today. Thank you for your participation. You may all disconnect.

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