Fresnillo Plc's (FRES:LSE) Q3/17 production of gold was a beat whereas that of silver, which included ounces from the Silverstream contract, was "a slight miss," wrote analyst Andrew Kaip with BMO Capital Markets in an Oct. 25 research report. The 233 Koz of gold produced compares to BMO's expected 223 Koz. BMO anticipated silver production of 15.4 Moz, but it came in at 14.6 Moz.
The mining firm announced that it "remains on track to achieve full-year guidance of 870–900 Koz of gold and 58–61 Moz of silver," added Kaip.
As for gold, the outperforming mine during Q3/17 was Herradura, which "exceeded our expectation, producing 132 Koz versus our estimate of 103 Koz," Kaip indicated. "The strong quarter from Herradura more than offset misses in production at Noche Buena and Saucito, as Cienega, Fresnillo and San Julian were largely in line."
In terms of silver, "the Fresnillo mine disappointed, with the operation not able to maintain the momentum it saw in Q2/17," Kaip noted. "Ore processed was 596.5 Kt, and silver grade fell to 202 g/t."
Kaip explained the company attributed this to "temporary limited access to higher grades given delays in development and mining equipment outages, as well as increased dilution." Further, "lower productivity from contractors and equipment failures" compounded the situation. Kaip noted BMO expects the effect of these circumstances to continue in Q4/17.
As for production at Fresnillo's other silver operations, Cienega was "slightly ahead" of estimates, Kaip reported. San Julian was "relatively in line." Saucito "missed on lower silver grades (264 g/t versus our estimate at 290 g/t)."
BMO's research note also included a brief update on two of Fresnillo's projects, which continue to advance. One, the pyrites plant, "remains on track and budget" for commissioning in H1/18, Kaip said. Two, "the second line of the dynamic leaching plant also remains on track and on budget at Herradura" for commissioning next year.
BMO has a rating of Market Perform and a target price of £15 per share on Fresnillo, whose stock is currently trading at around £13.28 per share.
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Disclosures from BMO Capital Markets, Fresnillo, Oct. 25, 2017
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
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