Fresnillo profits slump on higher expenses, slashes dividend

Profits at Fresnillo (LSE: FRES) tumbled last year as the Mexican gold and silver producer ramped up exploration expenditure, forcing it to slash its annual dividend payout despite higher revenues.

The FTSE 100 miner reported pretax profit more than halved to $114.0 million in 2023 from $248.6 million a year earlier. Fresnillo blamed the 54% plunge on reduced gross profit coupled with escalating administrative and exploration costs.

Exploration expenses surged to $182.4 million from $165.8 million the prior year as the group pursued an “intensified” exploration strategy across key target areas. EBITDA fell 13% to $655.7 million while earnings per share dropped to $0.31 from $0.35.

However, total revenue climbed 11.2% to $2.71 billion, buoyed by higher precious metal prices. Silver output rose 4.7% to 56.3 million ounces, though gold production dipped 4% to 610,646 ounces.

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The elevated spending ate into Fresnillo’s dividend, which was slashed to 5.6 cents for the year from 16.7 cents in 2022 under its policy of paying out 33-50% of post-tax earnings.

CEO Octavio Alvidrez cited inflation pressures and an unfavourable dollar-peso exchange rate as major headwinds, pushing up adjusted production costs 12% to $1.62 billion.

“We focused on raising productivity and development rates while advancing future projects. However, the peso revaluation against the dollar and inflation impacted costs across the business,” Alvidrez said.

Fresnillo now forecasts 2024 silver output of 55-62 million ounces and gold production of 580,000-630,000 ounces. Exploration spending will rise further to $190 million as it seeks to optimize operations and cut costs.

Fresnillo shares rose 3.6% in early trading following the results.