Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Gabriela Mayor - Head of Investor Relations

Analysts

Stephanie Bothwell - Bank of America Merrill Lynch

Anna Mulhalland - Deutsche Bank

Daniel Major - UBS

Cailey Barker - Numis Securities Ltd.

Fresnillo PLC (OTCPK:FNLPF) Q2 2014 Production for Analysts and Investors Conference Call July 16, 2014 3:30 PM ET

Welcome to the Fresnillo PLC Q2 Production for Analysts and Investors 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 today’s conference call is being recorded on Wednesday 16, July, 2014.

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

Gabriela Mayor

Thanks Chris. Good morning and welcome to Fresnillo Second Quarter Production Report. My name is Gabriela Mayor, and I am Head of Investor Relations for Fresnillo PLC. As always, I would like to [take] through the key points of today’s announcements before opening the call up to questions.

Fresnillo has continued to build on the stronger side to 2014, and we are very pleased with our operational performance in the past quarter. Silver production of 10.9 million ounces was up by 5% on the first quarter of the year, while gold production was up 32%.

The silver performance benefited from a strong contribution from the Silverstream and from the good performance of Saucito.

For gold, the improved figures reflected a gradual return to normal production levels at Herradura following last year’s explosives permitting issue as well as the first complete quarter of commercial production from the Dynamic Leaching Plant.

We expect Herradura to be operating at full capacity in the current quarter. These figures give us confidence that we are fully on track to achieve our full-year production target for 2014 of 43 million ounces of silver, including the Silverstream and 450,000 ounces of gold.

Looking further out, we have announced today that our development projects remain seemingly on track. We expect to conclude construction of Saucito II by the end of this year, which will further enhance this world class asset.

Development work at San Julian also continues in line with our plan and budget with commissioning expected in the second half of 2015.

Combined, these projects will add further production of 19 million silver ounces, and 80,000 gold ounces per annum once operating at full capacity.

Meanwhile, our exploration program is ongoing with good result obtained in particular from drilling in the Guanajuato and Cienega districts, as well as at Pilarica in Peru. We expect that to result in increased resources at the year end.

So, our focus for the remainder of 2014 is clear. We remain committed to operational excellence at both our assets and are particularly committed to addressing the current lower grades at the Fresnillo mine.

We understand the issues and are working on a number of fronts to optimize grades, and production in the future, but we have the flexibility afforded by our high quality asset portfolio to ensure we will meet our full year targets, and we will continue to forge ahead with our development project and exploration program.

Fresnillo has a business model and a strategy focused on growth that is sustainable and profitable for all stakeholders, and we are pleased that as we move into the second half of the year, we have established a service platform to deliver just that.

Thank you for your time, and I will now like to open the call up to your questions. Chris can I have the first question please?

Question-and-Answer Session

Operator

Your first question comes from the line of Stephanie Bothwell. Please ask your question.

Stephanie Bothwell - Bank of America Merrill Lynch

Hi Gabriela, it’s Steph Bothwell from Bank of America Merrill Lynch. I just have a couple of questions primarily on Fresnillo. During the first half, grades have obviously been trending lower, but I guess that it’s being somewhat offset by higher throughputs and recoveries at the mines.

Can you give us some color on how sustainable do you think that is going to be going into the second half, and how we should think about your full-year production at Fresnillo?

Gabriela Mayor

Yeah, sure. Thanks Stephanie. Yes, that’s correct, we have been able to compensate for the lower grades with a higher throughput, and it will [build] up improved recovery rates, and we expect to continue to do that in the second half of the year.

So, roughly if you have the numbers and you put the [inaudible] at 2.7 million to 2.8 million tons per year multiplied by the 255 grams per ton of rate and the recovery rates as you know that are around 90% (inaudible), but normally it could be a result of close to 21 million ounces of silver approximately.

Stephanie Bothwell - Bank of America Merrill Lynch

Okay, perfect. And then perhaps secondly, could you give us some additional color on the potential initiatives and changes, perhaps reminding us methods that you are looking at to control dilution at the mines.

Gabriela Mayor

Yes, some of them are very technical, and we can spend here one hour talking about that, but roughly what I can tell you is that, it’s basically changing a little bit the meters that we are drilling while blasting, so in terms of long hole drilling, instead of having 30 meters for example, we can decrease that a little bit more, perhaps to 20 meters so that we don’t have a lot of dilution, and we can optimize the amount of mineral that we are getting from those stocks.

Stephanie Bothwell - Bank of America Merrill Lynch

And then perhaps just finally and just changing tracks somewhat, for by-product production from both Fresnillo and Cienega, and how should we think about that for the rest of the year. Should we look at it, put it on a similar basis to do the run rate that you’ve had in H1 or what’s the thinking there?

Gabriela Mayor

Yes, for the time being, I will just keep the same strength that we have had in this first half of the year.

Operator

Your next question comes from the line of Anna Mulhalland. Please ask your question.

Anna Mulhalland - Deutsche Bank

Hi Gabriela, it’s Anna Mulhalland here from Deutsche Bank. I just had a follow-up question on the Fresnillo mine grade trend or trajectory and then also on recovery rates at Noche Buena.

On the Fresnillo side of things, obviously you’ve guided now for about 255 for this year. How do you see that recovering and to what level throughout 2015, and the same sort of question on recoveries at Noche Buena. Obviously, you are looking at a recovery from 50% to 54% for the second half. What do you expect as we go forward from that mine, what’s the planned recovery, thanks?

Gabriela Mayor

Thanks Anna. Yes, in terms of Fresnillo, we are evaluating what the operating or mine plan is looking like for the next year, and also we don’t really want to leave any update or guidance because you know that we conduct these kind of analysis often, and we really want to make sure that we have the correct figures.

Right now at this point in time, I can tell you that we believe that we are at the lowest point. We don’t believe that we are going to have lower rates than 255 grams per ton, but of course I can tell you that we are not also expecting to have like in previous years, rates above 300 grams per ton.

So, we believe that right now we are having the most conservative, prudent approach that perhaps we would have taken before, and right now we feel very, very confident with the 255 grams per ton, and as we were telling you, we are not really changing the production target for the full year in terms of 2014, and we are pretty confident that with the flexibility that we have with our portfolio, 2015 and 2016 and the years beyond that are going to be okay in terms of the growth profile that we have been establishing or setting up for the company.

In terms of Noche Buena and the recovery rates, yes, you are right we are estimating that we are going to have close to 55, well between 50% and 55% of recovery rates there. You know that with the open open pits, you have these kinds of valuations normally, because it all depends on how many leaching pads you have under utilization and also the height of the leaching pads.

So you have these kinds of variations, but we are very confident that in the second half of the year that is going to be maintained, and normally at the open pit mines is this is the kind of recovery rates that we are expecting in the future, so that will not have a lot of variation I hope so, which is earning extraordinary variation.

Operator

(Operator Instructions). And your next question comes from the line of Daniel Major. Please ask your question.

Daniel Major - UBS

Hi Gaby, it’s Dan Major from UBS. Quick question on Saucito. You succeeded name plate capacity at the plant and also achieved better recovery rates and grades. Can you give us a little bit color on how sustainable the sort of throughput rates you achieved in the first half of the year are looking kind of through the year.

And also, do you remain on track to commission Saucito II in the second half of the year? Are you expecting any meaningful contribution to production in this year from Saucito II?

Gabriela Mayor

Yes, thank you Dan. In terms of Saucito, yes performance at this mine has been very, very good, but of course that is also related to our expertise of our people there. You know that they were able optimize the process and to reduce the time that we used to give the maintenance program.

So that of course helped us to increase the ore throughput, and we are very confident actually that this is going to be the case also in the second half of the year. We are not expecting any valuation in terms of the performance that we are having at the Saucito mine. So yes, we expect the Saucito mine to continue performing very, very well in the second half of the year.

In terms of Saucito II, meaningful, that’s what we will be [tweaking]. I mean, we are still on track to conclude a project by the end of the year. As we were telling you at the time of the drilling, we were expecting to have the planned commission and of course perhaps conduct some tests, so we were planning to have a little bit of production from the Saucito II.

I don’t want to really specify what meaningful it’s going to be, but we can assure you that it’s looking very well, the construction of Saucito II, and yes, but we are expecting a little bit of production, but not sure what meaningfully it is going to be. But of course, in total we are going to get to the 43 million ounces of silver that we are targeting for this year.

Daniel Major - UBS

Also one quick follow-up on Anna’s question to be clear on the medium-term grade profile for the Fresnillo mine, obviously in the shots you’ve previously shown, you sort of have the grade in 2015 to stay around 275 grams a ton and kind of trending a little bit low, but remaining well above the 250 out to 2018. Is that still the case, or is it going to be closer to the sort of 255 level sustainably?

Gabriela Mayor

Yeah, I will prefer just to wait a little bit Dan, because the top management is having a lot of meetings to discuss these, and of course we are evaluating everything in terms of how the mining plans are looking like in the future, and we would like to update you on this issue or topic further on, perhaps two times a week or if we are still going to be conducting some further analysis, perhaps at the end of the year.

Operator

Your next question comes from the line of Cailey Barker. Please ask your question.

Cailey Barker - Numis Securities Ltd.

A question just on Saucito; I just saw the gold grades have spiked up this quarter, is that going to continue?

Gabriela Mayor

It’s difficult to predict, because it’s also related to the (inaudible). You know that we normally have this estimation, but of course when you are mining, then you can see that the real grades that we have or the real production that we are having there is sometimes above, sometimes below what we have.

So, in this case, it was above, so that was a good performance in terms of this quarter, but perhaps it’s not going to continue in the next quarter, I mean I won’t portray to be conservative.

Cailey Barker - Numis Securities Ltd.

Just a question on Herradura, obviously it’s sort of getting back up towards production levels. When do you see it hitting it back to normal steady state again, is it going to be in this quarter or by Q4?

Gabriela Mayor

Yes, we believe it’s going to be in this quarter, and we are committed to produce 200,000 ounces of gold attributable for the full year, including the Dynamic Leaching Plant of course.

Operator

There are no further questions at this time, please continue.

Gabriela Mayor

Thank you Chris, thank you everybody for dialing in. Please if you have any further questions, just get in touch with me and enjoy the rest of your day. Thank you.

Operator

And that does conclude our conference for today. Thank you for participating. You may now all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Fresnillo PLC (FNLPF) Management on Q2 2014 Production (Transcript)
This Transcript
All Transcripts