Tuesday, July 26, 2016

Fresnillo Silver Mine - Deteriorating Asset

Fresnillo plc took its name from the Fresnillo mine, a giant silver operation. Quite interesting but this mine has been in operation since 1554 when one of the Spanish conquistadores started mining silver up there.

Once the company's flagship property, these days the Fresnillo mine is the third most important asset. In 2015 two other mines, Saucito and Herradura, reported higher revenue than Fresnillo.

Although the company tries to improve Fresnillo, this operation is deteriorating.

Let me show this slow but negative process in the long-term perspective.

Fresnillo is mainly a silver operation. Let me assume that all silver, delivered by the Fresnillo mine, was being sold at $15.55 per ounce, the average gross price of silver realized in 2015. If that was the case Fresnillo would deliver the following revenue, calculated per ton of ore processed:

How to read this chart? For example, if in 2005 silver was trading at $15.55 per ounce the company could get $240 per each ton of ore processed at Fresnillo.

In 2015, ten years later, it could get only $101 per each tone of ore processed.

As the chart shows, the deterioration is substantial and its main reason are lower grades reported at Fresnillo:

In 2005 the ore processed at Fresnillo contained 524 grams of silver while in 2015 there were only 220 grams of silver.

In 1H 2016 this negative trend stopped (at least for a while) - the company was processing the ore grading 234 grams of silver per ton. However, in my opinion, the magnificent Fresnillo mine's performance is a thing of the past...

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