Fresnillo shares drop as plant delays hurt production forecast

Shares in one of London’s biggest mining companies dropped on Wednesday as it revealed that Covid-19 had delayed the licensing of a new gold and silver plant in Mexico, while a landslide would hit gold production.

Fresnillo said that construction on the second phase of the Pyrites plant had been commissioned on time and on budget in the last three months of 2020.

However, before it can start operating the plant, where gold and silver are extracted from ore, Fresnillo must get the thumbs-up from inspectors.

The inspections have been delayed by the Covid-19 pandemic in Mexico, where Fresnillo operates.

Mexico, where president Andres Manuel Lopez Obrador has recently been diagnosed with Covid-19, is facing the brunt of the pandemic.

The country has registered the fourth highest death toll in the world – 152,000 – ahead of the UK in fifth place, according to data from Johns Hopkins University.

“Given the current Covid-19 situation in Mexico, we do not foresee inspections taking place in the first half of the year, and this is reflected in our 2021 production outlook,” Fresnillo said.

It expects silver production to hit between 53.5 and 59.5 million ounces this year, hit by Pyrites and other issues.

Gold production meanwhile is expected to fall to 675,000-725,000 ounces, mainly because of a small landslide at the Noche Buena gold mine, which limited access to some deeper parts of the site.

In 2020 the company produced 53 million ounces of silver and 769,618 ounces of gold, down 12% and 3% respectively from the year before.

Shares dropped 8.4% on Wednesday.

“It gives me real pride that despite the challenges, we have delivered a robust operational performance in the final quarter with both gold and silver production in line with expectations,” said chief executive Octavio Alvidrez.

“We have also successfully progressed our development pipeline during the year. The Pyrites plant and optimisation of the beneficiation plant, both at Fresnillo, were successfully completed in the last quarter, both on time and on budget – a remarkable achievement under the circumstances.

“The optimisation plant, which will improve our ability to process the higher lead and zinc content at the Fresnillo mine, is expected to start operations in February, while electrical permitting delays will push back start of the Pyrites plant into the third quarter.”