Fresnillo Plc. Delivers Record Production Figures
Fresnillo plc. (FNLPF) is the world’s largest primary producer of silver. Additionally, the company produces gold and base metals. Yesterday Fresnillo disclosed its 2016 production figures. In my opinion, they were excellent.
First of all, in 2016 the company extracted 45.7 million ounces of silver (an increase of 6.2%, compared to 2015). Gold production went up from 762 thousand ounces in 2015 to 936 thousand ounces last year (an increase of 22.8%). Well, although Fresnillo is perceived as a silver producer it is not true anymore. Assuming that the average gold silver ratio was standing at 73.3 last year, Fresnillo produced more gold (68.6 million ounces of silver equivalent) than silver (45.7 million ounces).
Further, Fresnillo currently runs six mines – all are located in Mexico. In the second half of 2016, the company put online a new mine, called San Julian. At its full capacity, this operation should be delivering 13.5 million ounces of silver equivalent per year increasing the total capacity from 110.1 million ounces to 113.5 million ounces of silver eq. (an increase of 12.2%). Add to that 4 million ounces coming from the long – term streaming agreement (“Silverstream agreement”) and this year Fresnillo should extract 124.4 million ounces of silver equivalent (an increase of 4.6%, compared to 2016). The chart below shows the company’s historical production of silver and gold plus 2017 estimate:
(Click on image to enlarge)
Source: Simple Digressions
Due to the fact, Fresnillo is going to publish its 2016 full year results on February 28, I am not able to discuss financial issues now. However, let me plot one chart, which, in my opinion, evidences the excellent long – term performance of the company:
Source: Simple Digressions
The chart shows cash flow from operations calculated on a per-share basis. Generally, the higher the price of silver the higher the cash flow. However, note that in 2015, despite lower silver prices, Fresnillo generated higher cash flow (two bars marked in blue). In my opinion, that is the point. Fresnillo is an extraordinary company - due to its high corporate culture, it is able to perform well even in bad times.
I think that the long – term shareholders should feel fine with these stocks. Since 2007 the cash flow per share went up from $0.17 to $1.11 in the first half of 2016 (an increase of 552%). Believe me, it is not a common thing in the precious metals sector. For example, the same ratio, calculated for a few sector giants, discloses very poor performance:
- Barrick Gold (ABX): an increase of 5%
- Goldcorp (GG): a decrease of 24%
- Newmont Mining (NEM): an increase of 72%
Summarizing, in my opinion, Fresnillo is one of the best long – term picks in the precious metals sector.
Disclaimer: This article is not an investment advice. I am not a registered investment advisor. Under no circumstances should any content from here be used or interpreted as a recommendation for ...
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