Monday, July 4, 2016

Fresnillo plc - Construction Of The San Julian Phase I Is Completed

Fresnillo plc is a silver / gold giant operating six mines in Mexico. On July 1, 2016 the company announced that the construction of its newest mine, San Julian, was completed on time and on budget. 

San Julian is the third, mainly silver producing, operation in the company's mineral portfolio. Let me list all Fresnillo's silver mines:

  • Resources comprise measured and indicated resources plus inferred resources
  • Production as in 2015 excluding San Julian
  • San Julian production is the forecasted average annual production over Life Of Mine 

The table shows that San Julian is going to be the smallest silver operation in the company's portfolio. Additionally, this year San Julian should deliver only marginal amounts of silver. The table below documents this forecast:

source: Fresnillo (slide 20)

Note: In my opinion, Fresnillo is one of the worst mining companies as far as outlook figures are concerned. The company does not report any specific data on its future production. The chart above shows that San Julian should deliver around 1.0 or 2.0 or maybe 3.0 million ounces of silver in 2016 - but I am not sure (maybe a magnifying glass could help here in some way but I do not have any). Shame...(the same thing is with technical reports - try to find any)

Lastly, in its first phase of production San Julian will be working on the ore delivered from the vein field. This zone is much smaller than the second stage zone (disseminated body), which should start its operations at the end of 2016. So in 2016 San Julian is going to be just a marginal operation.

However, in June Mr. Market lifted Fresnillo share prices significantly higher:

As a result, Fresnillo's shares are currently trading at an EV / EBITDA multiple of 35.5, which is one of the highest in the entire industry. 

Well, I like this company but its shares seem to be highly overvalued at the moment...

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