--Fresnillo committed to investing in growth projects despite uncertain economic climate
--Revenue rose as higher gold prices and output offset lower silver prices and output
--But Ebitda fell as cost of sales increased due to commissioning of new mines and higher raw-material input costs
--Interim dividend drops 26% to $0.155 a share
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By Alex MacDonald
LONDON--Mexican precious-metals miner Fresnillo PLC (FRES.LN) on Tuesday said it remains committed to its growth program despite uncertainty in the global economy, and as higher operating costs pushed its net profit down 25% in the first half of the year.
"We consider the global economic climate will remain uncertain as a number of developed countries continue to display signs of recession," said Fresnillo's chief executive, Jaime Lomelin, who announced his retirement last week.
"However, we remain committed to delivering on the group's production and growth program by investing in productivity, efficiency and exploration," he said.
Fresnillo, the world's largest primary silver producer and Mexico's second-largest gold producer, said revenue for the six months ended June 30 rose 2.7% on the year to $1.09 billion. For the first time, more than half of the miner's revenue came from gold, as higher gold prices and record gold production more than offset falling silver prices and lower silver output stemming from anticipated lower ore grades at the Fresnillo mine.
But the cost of sales increased by more than one-third, pushing earnings before interest, taxes, depreciation and amortization, or Ebitda, down 9.2% on the year to $684 million. Costs rose due in part to start-up expenses associated with its Noche Buena mine, additional operational costs from the Saucito mine and higher labor and material unit costs, among other things. But those factors were partly mitigated by an 11.4% devaluation of the Mexican peso against the dollar, which lowered costs in Mexican pesos when converted to dollars.
Mr. Lomelin said mining-cost inflation would average 7% to 8% this year due to higher labor, diesel and other input costs, but he said the company's cost of production remains firmly at the lower end of the cost curve.
Fresnillo reported an Ebitda margin of 63.1% in the first half of the year, compared with 71.3% in the first half of 2011, as a result of the cost pressures, a level which Mr. Lomelin said he expects the company to be able to sustain during the second half.
First-half net profit attributable to shareholders fell 25% on the year to $367 million. The interim dividend was cut to $0.155 a share from $0.21 in the same period a year ago.
The London-listed miner plans to produce 41 million ounces of silver in 2012, broadly flat on the year once the 3 million troy ounces from the Silverstream contract are taken into account, and 460,000 ounces of gold in 2012, up on the year as it ramps up its Noche Buena mine.
The company remains committed to investing in its growth projects. The company plans to spend $680 million in capital expenditure this year, including $200 million in sustainable capital investment. The remaining amount will be spent on growth projects such as increasing the processing capacity of its Fresnillo operations and completing the Herradura leaching plant.
Capital expenditure is then expected to average about $500 million a year over the next four to five years.
Fresnillo's shares closed up 0.2% in London on Tuesday at 1,456 pence, resulting in a market capitalization of 10.44 billion British pounds. Fresnillo's shares are down 4.7% since the beginning of the year.
Write to Alex MacDonald at firstname.lastname@example.org
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(END) Dow Jones Newswires
July 31, 2012 17:27 ET (21:27 GMT)
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