Fresnillo : Resultados financieros por el ejercicio terminado el día 31

2023 Highlights

Higher gold and silver prices offset by the dual impact of inflation and the revaluation of the Mexican peso

• Adjusted revenue increased 10.5% vs 2022 due to higher volumes of silver sold, and to a lesser extent, the increase in volumes of lead and zinc sold, combined with the higher gold and silver prices.
• Revenue increased 11.2% year-on-year to US$2,705.1 million due to the increase in adjusted revenue, partly offset by higher treatment and refining charges.
• Adjusted production costs1 increased 12.3% vs 2022 to US$1,624.1 million. This was primarily driven by the adverse impact caused by the revaluation of the Mexican peso/US dollar exchange rate which, on average, appreciated 11.7%, along with 3.9% in cost inflation, the additional costs from the start-up of the flotation plant and ramp up of the mine at Juanicipio and the start-up of the pyrites plant at Fresnillo.
• Gross profit and EBITDA3 decreased to US$503.2 million and US$655.7 million, a 6.1% and 12.7% decrease vs 2022 respectively.
• Exploration spend increased 10.0% to US$182.4 million, in line with our strategy to intensify exploration activities in specific target areas.
• Profit from continuing operations before net finance costs and income tax of US$114.0 million, down 54.1% as a result of lower gross profit and higher administrative and exploration expenses.
• Profit for the year attributable to equity shareholders of the Group of US$233.9 million, down 14.0% on 2022 mainly due to the lower profit from continuing operations offset by tax income for the period of US$205.0 million, which compared favourably to the US$67.4 million tax income in 2022.
• US$534.6 million in cash and other liquid funds as of 31 December 2023 notwithstanding investing US$483.4 million in capex, repaying the US$317.9 million Senior Notes due in November 2023 and paying dividends of US$108.4 million.
• Net debt was US$304.4 million as at 31 December 2023. This compares to the net debt position of US$198.7 million as at 31 December 2022.
• The Group signed a five-year committed revolving line of credit for up to US$350 million.
• Final dividend of 4.2 US cents per share, amounting to US$30.9 million, which is above the amount signalled with the interim dividend payment.

Final dividend payment

• Final dividend of 4.2 US cents per share, amounting to US$30.9 million. This is in addition to the 2023 interim dividend of 1.40 US cents per share, amounting to US$10.3 million, which was paid in September 2023 and represented 1/3 of the expected total dividend for 2023. This brings the total dividend for the year to 5.6 US cents per share, amounting to US$41.2 million. This is in line with the Group's dividend policy to pay out 33-50% of the profit attributable to equity shareholders of the company after making certain adjustments to exclude extraordinary non-cash effects in the income statement, which this year in particular included taking out the income tax benefit resulting from the effect of the revaluation of the Mexican peso on the tax value of assets and liabilities, which increases in dollar terms the deduction of future depreciation expenses (in peso terms, which is used for Mexican tax purposes, there is no impact). However, this favourable effect in dollar terms could be reversed in the future if the Mexican peso devalues.

1 Adjusted production costs are calculated as cost of sales less depreciation, profit sharing, hedging, change in inventories and unproductive costs. The Company considers this a useful additional measure to help understand underlying factors driving production costs in terms of the different stages involved in the mining and plant processes, including efficiencies and inefficiencies as the case may be and other factors outside the Company's control such as cost inflation or changes in accounting criteria.

Sound operating performance with silver equivalent production in line with guidance

• Full year attributable silver production of 56.3 moz (including Silverstream) increased 4.7% vs. FY22, as a result of the ramp-up at Juanicipio and higher ore grade at San Julián Veins, partly offset by the lower ore grade at San Julián (DOB) and Fresnillo.
• Full year attributable gold production of 610.6 koz, down 4.0% vs. FY22 mainly driven by the decrease in gold production at Noche Buena as it approached the end of its mine life, partially mitigated by the ramp up at Juanicipio and the higher ore grade at Herradura.
• Full year attributable by-product lead production increased 9.2% vs. FY22 due to a greater contribution from Juanicipio and higher volume of ore processed and ore grade at Saucito partly offset by the decreased production at Ciénega.
• Full year attributable by-product zinc production increased 8.6% vs. FY22 due to the increased production from Juanicipio and the higher volume of ore processed and ore grade at Saucito partly offset by the lower ore grade at San Julián (DOB).
• The flotation plant at Juanicipio was commissioned and production was successfully ramped up.
• The tie in of the Pyrites plant at Fresnillo to the national power grid completed in 2Q23, tests and technical work to improve recovery rates were carried out and a strategy to optimise performance was defined.

Focus on operational improvement and projects that will increase efficiencies

• At Fresnillo, deepening of the San Carlos shaft concluded with commissioning on-going to optimise the haulage of ore through ramps while the two sections of the shaft are connected. Development rates increased to an average of 3,105 metres per month.
• At Saucito, the project to deepen the Jarillas shaft from 630m to 1,000m progressed with completion expected in 2027.
• At Ciénega, several initiatives to decrease personnel rotation were implemented throughout the year. We expect to see the benefit from these in 2024. A number of cost reduction initiatives identified including optimised consumption of certain operating materials, increased the efficiency of the maintenance process and the rationalisation of the contractor base are expected to decrease costs in 2024.
• At Herradura, the Carbon in Column project to increase gold recovery from the old leaching pads was commissioned in 2Q 2023 and ramp up started in 2H 2023. The pit slope optimisation programme continued, and recommendations are being tested in different geotechnical domains of the pit. Once concluded, the mine design will be reviewed and adjusted accordingly.

Continued progress at our advanced exploration projects and promising exploration results

• Pre-feasibilitylevel studies at the Orisyvo project, including mining and processing scenarios, metallurgical, infrastructure, and water/energy supply advanced at a good pace along with community and government engagement programmes.
• Core and reverse circulation drilling intensified at the main zone at the Tajitos project with good results in infill and step-out holes; ongoing column metallurgical test work delivered good preliminary gold recoveries. Drilling started in the western part of the district.

• The drilling programme at the three areas of the Guanajuato District delivered good silver and gold results, including the discovery of a significant ore shoot and the extension of both vein and stockwork ore bodies.
• Land access negotiations with the local communities continued at Rodeo. Social, environmental, hydrological and power supply studies advanced as the community relations programme was maintained in the region.
• In Chile, drilling and additional targets delineation continued with promising results at Capricornio, and drilling programmes were completed at Pilarica and Santo Domingo in Peru.
• Silver resources remained broadly stable at 2,219.7 moz (up 0.7%) as exploration results, mainly at the Guanajuato exploration project and San Julián veins, offset the mining depletion at mine sites, and higher costs and cut-off grades. Silver reserves decreased 10.0% to 356.6 moz mainly from mining depletion and higher costs and cut-off grades at San Julián (DOB), Juanicipio and Ciénega, partly offset by increased reserves at Fresnillo.
• Gold resources decreased 3.1% to 37.9 moz as a result of extraction and higher costs and cut-off grades at Herradura, Saucito and Soledad Dipolos (no mining), partly offset by exploration results and increased mineral resources at the Guanajuato and Centauro Profundo exploration projects and the Ciénega mine site. Gold reserves decreased 13.7% to 7.1 moz primarily due to extraction, and higher costs and cut-off grades at Herradura and Saucito, and the end of the Noche Buena mine life.

Further improvement in the sustainability of our operations

• Action taken to overhaul our 'I Care, We Care' programme with a sharper focus on performance and effective management of high potential and critical risks. We remain determined to restore our safety record to its previous path, eliminate fatalities and achieve our target of reaching the International Council on Mining and Metals (ICMM) benchmark ranges.
• Established the Occupational Health Transversal Committee and Wellbeing Committee to promote healthy habits and emotional wellbeing.
• Increased our electricity supply from renewable sources from 35.6% in 2022 to 53.3% in 2023.
• Encouraged diversity by promoting the first Women in Mining Survey in Mexico - with 1,230 participants - to improve understanding of how to develop opportunities for women in mining and launching the second generation of the Women-to-Women Mentorship programme.
• Conducted workshops for 4,732 employees and contractors as part of our Harassment Prevention Programme.
• Conducted a comprehensive review of our Code of Ethics and Conduct.
• Approved the Tailings Policy and Commitments for Responsible Tailings Management, which establishes roles, responsibilities, and duties of the different participants of the TSFs management system.

2024 outlook and longer term prospects

• Attributable silver production expected to be in the range of 55.0 to 62.0 moz (including Silverstream). Silverstream silver production in 2024 is estimated to be in the range of 2.5-3.5 moz.
• Attributable gold production expected to be in the range of 580 to 630 koz.
• Expressed in silver equivalent ounces1, production is expected to be 101-112 million ounces.
• Capex for 2024 is anticipated to be approximately US$440 million and will continue to be primarily focused on mining works, sustaining capex and a haulage conveyor.
• Exploration expenses are expected to be c.US$190 million, maintaining our strategy to intensify exploration activities in specific target areas.
• We will continue to monitor costs closely, with a number of initiatives in 2023 that we will continue to develop and deploy during 2024, further optimising and reducing costs where possible.

Chairman's statement

Alejandro Baillères

Working together to build a sustainable future

Although this year was characterised by high levels of cost inflation exacerbated by the strength of the Mexican peso and compounded by other negative macroeconomic factors, as well as some operational difficulties, Fresnillo plc proved to be a resilient business.

By working closely with our people, our suppliers, our communities and the Government, we were able to achieve a good operating performance while also taking important steps towards building a sustainable future for Fresnillo plc.

Delivering on our promises

In terms of silver equivalent ounces, our total production was in line with our guidance for the year. Silver production was up from the previous year, primarily due to the ramp up at Juanicipio, while gold production decreased as our Noche Buena mine approached the end of its life.

We achieved US$2,869.1 million in adjusted revenue during the year. This represented an increase of 10.5%, primarily due to the increase in the volume of silver, zinc and lead produced and higher prices for gold and silver. Gross profit decreased by 6.1% year-on-year to US$503.2 million, primarily driven by the adverse effect of the revaluation of the Mexican peso against the US dollar, cost inflation, the recognition of additional costs from the start-up of the flotation plant at Juanicipio, and the increased use of maintenance services and contractors, which significantly impacted cost of sales. This was offset by the increase in adjusted revenue. Cash and other liquid funds decreased from US$969.1 million to US$534.6 million as the use of funds, primarily the investment in capital expenditure and dividend payments, in addition to the redemption of the outstanding US$317.9 million principal amount of 5.500% Notes due in November 2023, was higher than the cash generated by the mines.

With a history that can be traced back over 500 years, Fresnillo plc is a well-established and solidly financed business focused on long-term outcomes and sustainable shareholder value. Our strategy is robust and proven, and our dividend policy remains unchanged. We aim to pay out 33-50% of profit after tax each year, while making certain adjustments to exclude non-cash effects in the income statement. Dividends are paid in the approximate ratio of one-third as an interim dividend and two-thirds as a final dividend. Before declaring a dividend, the Board carries out a detailed analysis of the profitability of the business, underlying earnings, capital requirements and cash flow. Our goal is to maintain enough flexibility to be able to react to movements in precious metals prices and seize attractive business opportunities.

For 2023, we declared an interim dividend of 1.40 US cents per share, with a final dividend of 4.20 US cents per share, bringing the total for the year to 5.6 US cents per share.

A challenging macro environment

The final effects of the pandemic have now largely worked through the system, but global geopolitics continue to create stresses in the supply chain, notably the ongoing tensions between the US and China which are impacting the timely delivery of equipment and spare parts.

In addition, we have also been affected by changing government policies, which have extended permitting processes for mining operations and projects.

Cost inflation was 3.9% in 2023 and led to across-the-board hikes in the cost of labour, materials and equipment. The price of diesel ran counter to this inflationary trend in the early part of the year but that too increased in later months.

The effect of inflation was made significantly worse by the unhelpful peso-dollar exchange rate caused by a relatively positive economy in Mexico. This was driven by investment attracted by the high rates of interest offered by the central bank and also by investment from foreign companies, seeking to establish a presence in Mexico in order to capitalise on its close geographic proximity to the US.

Working together, thriving together

The year underlined the value of the close working relationships we have forged over many years with all our stakeholders. Founded on a spirit of trust and mutual respect, these relationships not only help us navigate our short-term challenges but also to build a sustainable future that will provide long-term benefits for all, in line with our Purpose - to contribute to the wellbeing of people through the sustainable mining of silver and gold.

For example, we are working together with our suppliers to mitigate the effects of inflation and the strong peso by identifying opportunities to improve supply chain logistics, reduce costs and increase the speed of deliveries of equipment, spare parts, and services.

In terms of our workforce, while the recent labour reforms caused some initial disruption to our activities, they have ultimately helped us build closer relationships with our people and their unions. Through initiatives such as greater automation, we are working closely with them to increase productivity in our mines -- which will enable us to manage the impact of inflation by producing more from the same resources.

We are also collaborating with our workforce to bolster our organisation, processes and culture - ensuring that everybody at Fresnillo is aligned as we collectively address the challenges that lie ahead. Key among these is safety, and it is with great sadness that we report four fatalities among the contractors' workforce during 2023, and one in early 2024. These incidents are unacceptable and serve only to strengthen our resolve to achieve zero harm. We are intensifying the implementation of our 'I Care, We Care' safety programme, with a heightened focus on improving our management of high potential risks and critical risks, together with increased engagement with our contractors' workforce. The safety of our people is paramount and will never be compromised.

Our neighbouring communities continue to be the foundation stones that sustain our existing operations and facilitate future projects - and we value and nurture our vital partnerships with them. We earn their trust through meaningful engagement and by being accountable for our actions, working hard to establish close and harmonious relationships that ensure the seamless continuation of our social licence to operate across our project pipeline. We fully understand the concerns that can arise when a new mine is proposed, and are committed to engaging with local people in order to address their concerns and explain how our presence can lead to more sustainable communities - ranging from creating employment opportunities and economic growth to providing comprehensive support for education and healthcare.

Board activities

The Board met regularly throughout the year and discussed a range of matters, including the latest mining and regulatory developments in Mexico. For the second year running, in July we held a valuable working meeting of the Board which enabled Directors to discuss wider strategic issues with our executive team. Key topics included: a review of Fresnillo's Purpose, Mission, Vision, Values and Business Model; megatrends in the global mining industry; production; mine exploration and development; and the Company's ESG (environment, social and governance) and climate strategy.

Fresnillo's safety record during the year was a significant cause of concern at Board level. We have stressed the need for our management team to improve safety culture across all our sites, and fully support the HSECR Committee's insistence on the implementation of stricter disciplinary measures.

At the 2023 AGM in London, it was pleasing to see that all the proposed resolutions were strongly supported by our shareholders, including the re-appointment of Charlie Jacobs and Bárbara Garza Lagüera as independent Non-executive Directors, as well as some minor changes to our Directors' Remuneration Policy.

In September, we engaged consultants Lintstock to manage our annual review of the Board and its committees, in compliance with our commitment to seek external support for this review every three years. Lintstock's findings were discussed at our Board meeting in October and we were delighted to note that the key outcome of the review was that the Board and its committees continue to perform very well. Lintstock did however make a number of helpful suggestions to improve that performance still further and, following consideration, these will be acted upon during 2024.

Board changes

There were no changes to the Board this year, with all of the Directors being re-elected at the 2023 AGM.

Outlook

While global macro issues, such as inflation and the slow recovery of certain economies, the ongoing US-China tensions and the wars in Ukraine and the Middle East, will dampen confidence and challenge our performance targets, we will continue to work together with our stakeholders to improve productivity. At the same time, we will maintain our commitment to investing in exploration activities in Mexico, Peru and Chile, and strive to transform what is an undoubtedly exciting pipeline into operational projects that will help us achieve our ambitions in the years ahead.

Fresnillo does not and cannot operate in a vacuum. We depend on our employees, our suppliers, our local communities, our shareholders and the Government to actively engage with our objectives and ambitions in order to fulfil our Purpose. On behalf of the Board, I thank them and the full range of our stakeholders for their continued understanding, support and encouragement during 2023. By working together, we are building a stronger and more sustainable business.

Alejandro Baillères

Chairman

Chief Executive's statement

Octavio Alvídrez

A sound performance, with exciting projects on the horizon

This year, our teams were again challenged by a mix of external and internal factors. We worked together with our stakeholders to deliver on our production expectations while also making good progress in advancing our pipeline of future projects.

We achieved a sound operating performance in 2023, despite headwinds which included inflation and an unfavourable peso-dollar exchange rate.

Throughout, we remained extremely grateful to our stakeholders, who continued to collaborate closely with our own teams to build a sustainable future for our business, in line with our Purpose. We recognise that Fresnillo thrives when our stakeholder groups thrive, so working together to support our people, suppliers, local communities and the Government is not only the right thing to do - it is a commercial imperative. You can discover more about how we have worked with our stakeholders in the case studies throughout this report.

The year also saw us advance several exciting projects that we expect to make further significant progress in the months and years ahead.

Production highlights and price review

In addition to external macro-economic factors, we experienced minor operational setbacks with a delay to the start-up of operations at the new Pyrites Plant at Fresnillo, reduced availability of haulage equipment at San Julián and lower than expected ore grades at Fresnillo that impacted the year's performance. As a result, although gold production was in line with guidance, silver production fell below our expectations.

Total silver production was 56.3 moz, up by 4.7% from 53.7 moz in 2022, with the ramp-up at Juanicipio, together with higher ore grade at San Julián Veins, partially offset by lower ore grades at San Julián DOB and Fresnillo.

Gold production decreased to 610.6 koz, a reduction of 4.0% from 635.9 koz in the previous year. This was primarily due to lower production at Noche Buena as the mine approached the end of its life.

Attributable by-product lead and zinc production increased 9.2% and 8.6% to 57,833 tonnes and 107,705 tonnes respectively, primarily due to the increased contribution of Juanicipio and higher ore grades and volumes of ore processed at Saucito.

During 2023, the average realised silver price was US$23.6 and that for gold US$1,957.7, an increase of 8.8% and 8.8% respectively. The average price for zinc decreased by 22.6% while the average lead price remained broadly unchanged at US$0.95 per pound. With central banks around the world raising interest levels to counter inflation, I believe that silver and gold prices established a floor during the year. The fact that prices did not fall below US$20 per ounce and US$1,800 per ounce for silver and gold respectively shows the strength and long- term sustainability of these metals, even through tough economic times.

While forecasting global economic conditions is always difficult, I expect that falling interest rates and increased demand for silver in particular - driven by the expansion of green investments and specifically in solar panels, for which silver is a key component - should strengthen prices in 2024.

Our strategy in action

Our strategy is the engine that drives Fresnillo plc forward. It comprises four strategic pillars and here I report on how we have performed against each one.

Maximising the potential of existing operations

Ensuring that our operational mines are performing as efficiently as possible is our primary strategic objective - and this is an area where we rely heavily on the skills and availability of our people. Following the Mexican Government's introduction of labour reforms in 2021, we initiated a series of recruitment and training campaigns. These continue to be successful, and all our mines were again fully staffed throughout the year.

Across the portfolio, we are continuing to address the ongoing impact of inflation and the revaluation of the Mexican peso by investing in initiatives including the greater use of technology and autonomous drilling. We are also launching schemes to reduce haulage costs, which become more significant when we work more distant seams that require greater haulage. At the Fresnillo mine, for example, the deepened San Carlos shaft is set to reduce distances, speed up haulage and cut costs. This is expected to drive a marked improvement in our ability to efficiently access seams which account for more than half of the mine's reserves.

At Saucito, our initiatives include efforts to stabilise areas of poor rock quality. New equipment was delivered towards the end of the year, leading to development rates returning to 3,000m per month in December, an achievement that sets us up well for the year ahead.

We completed the safe ramp-up of our new Juanicipio mine in the third quarter of 2023 and it is now running at nameplate capacity in line with expectations. Juanicipio will have a positive impact on both silver and gold production, helping to offset the lower production at Noche Buena as it nears its end of life, with higher production of both lead and zinc further supporting our overall performance.

With recovery rates at the new Pyrites Plant at Fresnillo initially falling short of anticipated levels, we initiated some technical works and conducted tests to improve performance. We subsequently took the decision to only process historical tailings, as recovery rates improved significantly when following this strategy, and we will continue on the same path in 2024. This means that volumes processed will inevitably be lower than originally planned - although recovery rates and profitability will be higher than would be the case if we processed both current and historical tailings.

Delivering growth through development projects

With our two most recent development projects - the new mine at Juanicipio and Phase II of the Pyrites Plant at Fresnillo - being commissioned and therefore moving into our portfolio of existing operations, we are now focusing on enabling potential new projects to flow from the pipeline and deliver further growth.

We are continuing to concentrate on identifying M&A targets, not only in Mexico but also in the wider region. Establishing operations in different jurisdictions will enable us to de-risk the business by reducing country risk.