Fresnillo H1 Earnings Call Highlights

Key Points

• Record profitability was driven by higher precious-metals prices: First-half gross profit rose 131%, operating profit increased 149%, and cash from operations more than doubled to nearly $2.36 billion. Realized silver and gold prices climbed 126% and 47%, respectively, more than offsetting lower sales volumes.
• Costs increased significantly, with adjusted production costs rising nearly 21% due largely to the stronger Mexican peso, inflation, and mine-specific expenses at Herradura and El Salto. Fresnillo nevertheless reaffirmed its 2026 production guidance and reduced capital-expenditure guidance to $500 million-$550 million.
• The growth pipeline is advancing: Valles is expected to start production in the third quarter, Noche Buena is scheduled to restart in the fourth quarter, and longer-term projects such as Rodeo and Guanajuato Sur could add meaningful gold and silver production subject to permitting and approvals.

Fresnillo LON: FRES reported a record financial performance for the first half of 2026, as higher realized precious-metals prices more than offset lower year-over-year gold and silver sales volumes and rising production costs.

Chief Executive Officer Octavio Alvídrez said the company delivered a strong operating performance across its portfolio and remained on track to meet its 2026 production guidance. The company also raised its expected gold-grade outlook at the Fresnillo mine, while identifying potential for modestly higher gold production in 2027 and 2028.

“This has been an excellent first half 2026 for Fresnillo,” Alvídrez said, citing solid operations, record financial results, continued cost-control efforts and investment in future growth projects.

Prices drive record profitability

Chief Financial Officer Mario Arreguín said the first half represented the company’s strongest first-half financial performance since its initial public offering 18 years ago. Gross profit increased 131% from the prior year, operating profit rose 149%, profit for the period nearly tripled and EBITDA almost doubled, he said.

Higher metal prices were the primary driver. Fresnillo’s average realized silver price rose 126% year over year to $76.30 per ounce from $33 per ounce, contributing nearly $1 billion to the increase in adjusted revenues. The average realized gold price increased 47% to $4,647 per ounce from $3,169, while zinc prices were 27% higher than a year earlier.

Arreguín said adjusted revenues increased by $1.4 billion, largely because of pricing, although gold and silver sales volumes declined as expected. He said volumes remained above the company’s budget.

Cash generated from operations reached nearly $2.36 billion, more than double the prior-year level. The company ended June with $2.5 billion in cash, down from $2.76 billion at the beginning of the year after paying taxes, dividends, capital expenditures and the acquisition of Probe Gold.

• Fresnillo paid nearly $800 million in dividends in May related to its 2025 final dividend.
• It paid nearly $200 million in dividends to minority shareholders, including Pan American Silver, which owns 44% of Guanacevi.
• The Probe Gold acquisition used nearly $550 million of cash.
• First-half capital expenditures totaled $236 million.

The company said it has returned more than $2 billion to shareholders over the past five years. Arreguín reiterated that Fresnillo’s dividend policy is based on distributing 50% of net income, with the interim dividend calculated as 30% of projected annual distributions. For the remaining six months of 2026, the company is using assumed prices of $55 per ounce for silver and $4,000 per ounce for gold in its net-income projection.

Costs rise amid peso strength and mine-specific factors

Adjusted production costs increased nearly 21%, or $138 million, during the first half. Arreguín said roughly two-thirds of the increase reflected external factors, including a 12.5% appreciation of the Mexican peso against the U.S. dollar and 3.25% inflation in the company’s basket of consumables.

The stronger peso had a significant effect because the average exchange rate moved to 17.5 pesos per dollar in the first half of 2026 from 20 pesos per dollar a year earlier. Higher maintenance spending, longer haulage distances and stripping costs at Herradura also contributed to cost growth.

At El Salto, the company incurred an additional $10.5 million in temporary costs while deepening a shaft. Fresnillo is using contractors and mobile equipment to bring ore to the surface during the work, which Arreguín said should be completed later in the year.

Management said diesel prices remain a relevant cost consideration, although it expects operating-material inflation during the second half to be broadly similar to the first-half level. The company said wages have already been negotiated with unions.

Operations and development pipeline

Gold production increased 13.8% sequentially from the first quarter. However, first-half gold production declined 7.3% from the year-earlier period because of lower processed ore volumes and recoveries at Herradura. Silver output also declined year over year, reflecting the planned end of the Silver Stream agreement and expected grade variability at Saucito and Juanicipio.

At the Fresnillo mine, gold production rose 47.6% from the first half of 2025, supported by higher gold grades and a 13.3% increase in mine development rates. Saucito’s output was slightly below the prior year as work on the Jarillas shaft connection reduced ore volumes and increased haulage costs. Management expects that work to conclude in the third quarter.

Juanicipio’s silver output declined due to planned mine sequencing and grades, while gold production increased 19.1% on higher grades. At Ciénega, gold production rose 15% as development accelerated at the Victoria high-grade gold area. San Julián continued its transition to a single veins-processing facility, with management expecting the operation to generate cash flow for the next four to five years.

The company said Valles is expected to begin production in the third quarter, with long-term output projected at 50,000 to 90,000 ounces of gold annually and an average of 65,000 ounces. Noche Buena is scheduled to restart operations in the fourth quarter, with fresh ore expected in the second quarter of 2027 and fresh production in the second half of next year.

Fresnillo reduced its 2026 capital expenditure guidance to $500 million to $550 million through project optimization, equipment timing and reviews of sustaining investments. Management said projected spending for 2027 and 2028 does not include major growth-project capital until projects receive approval.

Among longer-term projects, the company expects Rodeo could produce 90,000 to 110,000 ounces of gold annually, subject to permitting, with potential startup by late 2029 or early 2030. Guanajuato Sur is expected to produce 15 million to 17 million ounces of silver annually under the current plan beginning in 2033, though Fresnillo is assessing options to accelerate development. Management estimated total capital for Guanajuato Sur at $700 million to $900 million while the project remains at the pre-feasibility stage.

About Fresnillo (LON:FRES)

Fresnillo plc is the world's largest silver producer and Mexico's largest gold producer, listed on the London and Mexican stock exchanges. The Group seeks to create value for stakeholders across precious metal cycles, focusing on high-potential silver and gold projects that can be developed into low cost, world-class mines. Following a decade of consistent and successful progress, the Group is now focused on consolidating its growth and advancing its pipeline in order to deliver further growth in the years ahead.

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