Tuesday, August 2, 2016

Fresnillo plc - I Have Underestimated This Company

In one of my last posts on Fresnillo I presented the 1H 2016 operating profit forecast. According to that forecast, the company was supposed to deliver an operating profit of $130.4 million.

Today the company released its 1H 2016 report. I was very positively surprised - the operating profit was $360.7 million, much higher than my estimate.

Let me explain the reasons of my underestimation:

  • In 1H 2016 Fresnillo was selling its silver for $16.58 per ounce but in my calculations I assumed a lower price of silver ($15.85 per ounce - the average silver price recorded in 1H 2016). It looks like Fresnillo is able to sell its metals at higher-than-average prices. And it is good.

  • I assumed the costs of production to stand at $13.62 per ounce of silver (the level reported in 2015). However, the company was able to decrease these costs to just $11.69 per ounce. Thanks to better quality of ore, higher output and better recovery ratios (especially at the Herradura mine) in 1H 2016 Fresnillo was producing its metals at costs of production lower by 14.2%, compared to 2015. 

And that is the main point -   I did underestimate the Fresnillo's management team and at this point I would like to say: "My sincere apologies".

Last but not least. Fresnillo is not an easy company in terms of forecasting. In its production reports (which precede the financial reports):

  • it does not disclose the prices at which it is selling its metals
  • no costs of production are delivered
  • the amount of metals sold is not disclosed

Well, I have to rethink the sense of presenting any forecasts of Fresnillo results. Simply put, production reports are lacking in information.

A short summary of my soybeans trade.

Well, this trade was a defeat, as most of my trades. Simply put, I am not a trader.
Although for a short while the trade was working on my favor then the positive trend reversed and started another leg down. I closed the position at a loss of 2.5%. Now the soybeans price action looks as follows:

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