Fresnillo PLC (LON:FRES.L), the largest silver producer and leading gold producer in Mexico, held an earnings call to discuss its year-end results for 2023. Despite facing operational challenges in 2021 and 2022, the company met its guidance, achieving $2.7 billion in revenues and maintaining a healthy dividend.
The financial results showed a decrease in gross profit, operating profit, profit for the period, and EBITDA, largely due to the revaluation of the Mexican Peso and increased production costs.
Fresnillo plans to invest approximately $190 million in exploration in 2024, focusing on brownfield exploration and key projects, as they aim to reduce costs by $40-$50 million through various initiatives. The company also reported an increase in its resource base to 2.8 million ounces of gold and 275 million ounces of silver.
Key Takeaways
- Fresnillo met its guidance with $2.7 billion in revenues despite operational challenges, inflation, and a strong Mexican Peso.
- The company remains the largest silver producer and a leading gold producer in Mexico.
- A focus on safety, environmental sustainability, cost reduction, and efficiency programs will be key for the coming year.
- Exploration investments will continue, with $190 million allocated for 2024, targeting brownfield sites and key projects.
- Fresnillo plans cost reductions in contracted mining, equipment rentals, and administrative expenses and expects a 3-3.5% increase in adjusted production costs for 2024.
Company Outlook
- The company will prioritize cost reduction and efficiency programs to counteract the impacts of high inflation and a strong Mexican Peso.
- Significant investment in brownfield exploration and key projects is planned for the coming year.
Bearish Highlights
- Lower gross profit, operating profit, profit for the period, and EBITDA compared to the previous year were reported.
- The revaluation of the Mexican Peso and increased production costs have impacted margins.
- General and administrative expenses increased, and the company saw a reduction in cash balance due to CapEx and bond maturity.
Bullish Highlights
- Silver production increased and gold and silver prices rose by 9% and 8.1%, respectively.
- The resource base grew significantly in a major gold and silver district.
- Plans to mechanize ore production at Herradura mine could increase production and reduce costs.
Misses
- Zinc and lead prices decreased by 23% and 1.4%, respectively, negatively impacting financial results.
- Other income and expenses were affected by extraordinary circumstances, including expenses related to illegal extraction.
Q&A Highlights
- Cost guidance for Juanicipio asset in 2024 estimated between $100 and $510 per tonne of ore.
- Sustaining CapEx expected to be $440 million in 2024, rising to $500 million by 2026.
- Active search for M&A opportunities continues, though none meeting the company's criteria have been found yet.
- The company is confident in turning the high all-in sustaining cost at Ciénega to be cash positive.
Fresnillo continues to navigate through a complex operational landscape, with a clear strategy to enhance efficiency and optimize production costs. The company's commitment to safety, environmental sustainability, and shareholder returns remains steadfast as it enters a new fiscal year with a strong focus on its robust exploration portfolio and the potential for future growth.
InvestingPro Insights
Fresnillo PLC (FNLPF (OTC:FNLPF)) has shown resilience in the face of market fluctuations and operational challenges. As investors consider the company's prospects, certain metrics and InvestingPro Tips provide a clearer picture of its financial health and future potential.
InvestingPro Data highlights the company's market capitalization at $4.54 billion, with a trailing P/E ratio for the last twelve months as of Q4 2023 at 18.76, indicating the company's earnings relative to its share price. The Price/Book ratio stands at 1.19, suggesting that the stock may be reasonably valued in relation to the company's assets. Furthermore, Fresnillo's revenue growth for the last twelve months as of Q4 2023 is reported at 11.18%, showcasing a solid increase in revenue.
InvestingPro Tips reveal that Fresnillo PLC maintains a high shareholder yield and has consistently paid dividends for 17 consecutive years, signaling a commitment to returning value to shareholders. Additionally, the company's liquid assets exceed its short-term obligations, providing financial flexibility and stability.
Moreover, the company is trading near its 52-week low, which may present a buying opportunity for investors considering the company's moderate level of debt and predictions by analysts that Fresnillo will be profitable this year. It's also noteworthy that the company has been profitable over the last twelve months.
For those interested in more detailed analysis and additional InvestingPro Tips, there are 6 more tips available for Fresnillo PLC at https://www.investing.com/pro/FNLPF. To gain access to these insights, use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing your investment research with comprehensive data and expert analysis.
Full transcript - Fresnillo PK (FNLPF) Q4 2023:
Octavio Alvidrez: Good morning, everyone. And thank you for being here for Fresnillo's Year-End Results 2023. I'm glad to be – I'm Octavio Alvidrez, and I'm glad to be joined by Mario Arreguín, our CFO; also Tomás Iturriaga, our Central Area Chief Operating Officer; Guillermo Gastélum, the Vice President of Exploration; and also joined by Daniel Diez, who is the newest addition to the team, and he will coordinate the northern part of the operations. The key themes that we will be discussing and talking about this morning and coming back from a few years on operational challenges, I would say it's about operations or stability in our operations, our focus on how to control and costs, of course, with a large setting on projects and across the areas, how we go about disciplined approach and also one more aspect, which is the investment in exploration through the cycles. But as I mentioned, I mean, in 2021 and 2022, we had this operational challenges across our operations. We have some difficulties to meet the guidance. So the very important aspect that time was to have a much better grasp on the operations and therefore, meet the guidance, something that we've been doing in recent years. However, I mean, last year, with the inflation running globally and in Mexico, more aggravated by the strength of the peso, now the focus is in controlling the cost, running very efficient our operations and trying to be – or get the best out of our current operation. I'm pleased with the performance of last year's despite the fact that we are running in a very tough environment in terms of – all the way, I would say, in all the change in exploration, but also on the permitting process and also on the construction and across with communities. Therefore, despite all these challenges, I mean we've been able to post a strong year-end results. I would like to see – to say that the aim of strengthening our team also with Daniel Diez is twofold. One, so that Tomás and Daniel are closer to the operations, given the challenges we face, but importantly is that they coordinate the efforts more efficiently all the way from the exploration, construction phase and bringing the new projects into operation. This is a key aspect in our company. First of all, I would go to the disclaimer. The agenda for today is about the highlights that I will be presenting then, some of the HSECR initiatives, the operations and update will be given by Tomás Iturriaga. And then after, we will hear about the exploration portfolio and how the projects are evolving by Guillermo Gastélum. Then after, Mario will give us an update on the financial part of the company and coming back to the outlook and the closing of the presentation, so that we can take your Q&A. Well, Fresnillo remains the largest silver producer, world's largest silver producer and the leading producer of gold in Mexico. We do have a sizable set of assets, all the way from the exploration concessions to the projects that we are developing and ending on the operations across our portfolio. We produced healthy margins, of course, underpinned by the strength of our operation, as I mentioned, the control on cost and efficiencies. Attractive returns, of course, a strong balance sheet and free cash flow from our operations. We continue to make good progress the fact that we have headwinds on the projects front, specifically, the extension of the permitting process, which is a bit challenging in Mexico nowadays. However – and we will go in more detail. We are making some advances. $2.7 billion in revenues, US$0.31 per share are the numbers that we are posting – reporting this morning, healthy dividend, and Mario will explain more about the rationale behind this dividend so that we also have a strong EBITDA numbers and cash flow generations. Something that I would like to mention is that our results have been affected, but by the inflation running globally in Mexico as well in the mining industry, but this is being aggravated by the strength of the peso. As of yesterday, I mean, we – the peso broke the – some of the floors, making – or showing this strength, just below Ps.17 per U.S. dollar. Some of the HSECR initiatives, very important, the safety of our personnel, guaranteeing the integrity of all those that we work at Fresnillo plc is something that we've been dealing with, especially coming back from 2022 in which we had the labor reform in Mexico. And therefore, we had to include in our headcount or bringing to the company a lot of contractor people and presenting a challenge in terms of the culture of that personnel. We suffered some fatality last year and that reversing the trend that you see on the screen from the lost time as well as a TRIFR coming down from 2018 to last year in which we reversed that good trend that we had before. So it's about reinforcing our measure, showing our leadership in terms of safety in our company. We start the week with a meeting, a safety meeting involving all of the leadership groups across our operations, our exploration offices and also in the administrative areas as well. But these incidents and accidents, I mean, is just a reminder that we have to do more every time. So with these measures in place, very directly or more directly not only to a personnel, but importantly to our contractor base. We are hoping to reverse this trend. On environment, we continue to work on aspects, key aspects like water. Of course, the sustainability across our operations, trying to reduce our carbon footprint with different projects. We continue to gather information, importantly, a study that we develop with the – on climate change that we developed through the University of Arizona. One more key aspect so that we can have all the information possible to define our way forward with projects in terms of reducing our carbon footprint all the way from the – our operations. In communities, very importantly and now even more in this administration, we cannot be more in line with the communities and trying to work in different capacities. I mean building capacities at the community so that they strengthen and have advantage of our economic evolvement in the areas and so that they can have a part of that. In terms of all the payments to our personnel salaries, contractor suppliers, and taxes, you can see that the contribution that we are making. And with this, I would like to bring to – the microphone to Tomás Iturriaga so that he can give us some of the main aspects of last year in our operation front.
Tomás Iturriaga: [Indiscernible]. Pleasure to meet you again talking to you about our 2023 results. As Octavio said, safety-wise, 2023 was a very challenging year as we suffer three fatalities for our Saucito mine. We're deeply sorry for these tragic events. However, we remain convinced and committed to our I Care, We Care safety program and also to our high risk management program to avoid serious injuries and fatal incidents. As Octavio said also, the unusual high turnover rates in the mining industry in general and in Mexico have impacted our safety performance across all of our mines and particularly in Saucito. So we are working very hard to reinforce our training and safety induction programs to be able to quickly and efficiently onboard and develop the safety and risk awareness skills of our very young crews and supervisors. We are committed to that and we'll keep working very hard to keep our employees safe. Moving to the operation results, 2023 was a confirmatory year of the stabilized performance at our mines. So I'm very pleased with the positive impact of our performance improvement plan at our mines with gold production making guidance and silver production, slightly missing the guidance we provided for the year, mainly due to the delay tie in to the public power grid of the Juanicipio process plant and the Fresnillo Pyrites plan; and, to a lesser extent, also impacted by bit lower-than-expected performance at Fresnillo and Saucito. Moving to the mine by mine details, we will start with the Fresnillo District, which is where the focus remains and the Fresnillo mine, although we were able to increase the throughput, head grades were below expectations, mainly due to negative geological model reconciliations against the actual grades and ore tonnes. And also impacted by higher dilution mainly associated with poor ground conditions. We are implementing all the necessary remediation measures to minimize the impact of these conditions going forward. And in the positive side of events at Fresnillo, we were able to increase throughput and mold the average development meters, both by 6% year-on-year. The deepening of the San Carlos shaft concluded, and that's going to have a very positive impact going forward. And we are nowadays working on the final details to bring the shaft to operation from its new deeper level. We were also able to successfully commission and ramp up the Pyrites Plant after finally being connected to the public power grid by the end of the second quarter. Moving to Saucito, throughput increased by 4% year-on-year, but results were impacted by lower-than-planned head grades, mainly due to a bolting and scaler equipment low availability and also by the implementation of a stricter ground control standard, slowing down mining cycles in certain areas of the mine. Availability of that equipment has been corrected and the new standards have been now fully incorporated to our operating processes. So we expect a better operating performance in 2024, while also putting a special emphasis in our safety programs to prevent any more incidents in Saucito. Down to Juanicipio, where despite not being fully operational for the whole period, Juanicipio had a strong year, taking advantage of the synergies in the Fresnillo district and contributed with 16.7% of the silver production of the group. The commissioning of the process plant was completed with no major issues and nameplate capacity achieved by Q3. Ore grade for the year was as expected. And with – mine development meters increased by 15% year-on-year at Juanicipio. So we think that Juanicipio it's a very good story to share with you so far. Going to Herradura, yes, gold production was slightly higher than last year due to higher grades in sulfide ore and positive geological model reconciliation, granting additional ore tonnes. And I'm happy to report that the electrical system issues in the dynamic leaching plants that we reported during last year, had been root solved. So we expect 2024 free of unexpected downtime or run restrictions for those plants. At San Julián, we continue to explore for additional resources with no success. So as previously disclosed, the Disseminated Ore Body operation is entering its last year of production. The Veins operations had a good year in terms of silver production, and gold production was slightly below plan due to lower grades. Finally, Ciénega, Ciénega had a stable year where we focus on reducing the contractor base and other cost reduction initiatives to set up a better 2024. After two years of great efforts spent on stabilizing the operations and setting a solid and stable production base, we are now going to increase our focus on cost reduction and improved efficiency programs that help us deal with the high inflation and a strong Mexican peso affecting our margins. So among those relevant cost reduction and efficiency projects across all of our mines, it can list the following: we'll do an in-depth review of our contracted mining unit cost to look and drive for the saving opportunities in all of our contracts; we will also review our fixed cost structures in all of our mines to detect cost saving opportunities; we will rationalize the equipment rentals in all the operations; we will work and optimize use of operating materials and reagents; we will do the engineering required to optimize the explosive loading factors, say from that very relevant item; and also, we will do the required redesigns to reduce the drift and ramp sections where possible in ore mines to [indiscernible] in the excavation and the volume removed at the end. During the year, we were also focused on developing our brownfield projects to increase and improve our mineral reserves of current operations and particularly at the Fresnillo District and Herradura mine. And these two will be able to take full advantage of our assets and existing installed capacity in those operations. So with that solid ground on the operations now, the focus moves stronger to efficiency and cost savings. Thank you.
Octavio Alvidrez: Thank you, Tomás. And as I mentioned, Tomás will be coordinated in the three operations in the Fresnillo district, Fresnillo Saucito and Juanicipio. And importantly, coordinating the efforts from all of the areas in order to bring the projects earlier in the program, specifically Orisyvo and Guanajuato, who's giving us good exploration results. And I would like to – and Daniel Diez, who's been with us for a couple of months now, well, since December last year. And they've been a transition with Tomás Iturriaga, going around the operations and I would like to ask you, Daniel, some of the initiatives that we've been putting in place or with the lead for your operations, which are Herradura, Ciénega and San Julián. And also some of the projects that you'll be coordinated with Tajitos, Rodeo and one in Chile Capricornio.
Daniel Diez: Good morning to everybody. This presentation focuses about the results on 2023, I just want to, in a couple of minutes, give you a glimpse of what this restructure for the company is and it's mostly about focus, about focusing our operations and focus about performance, but also focus about getting the most value out of the assets that we already have. That's why what we are presenting on this slide, it's a glimpse of what we're doing in one of our current total assets, that is Herradura. And as you can see, there are two parts on what you can see on the slide. And it's about the balance that we need to provide in terms of capturing value in the short-term with clear initiatives in order to increase productivity and decrease our cost base and what we have to do in thinking on our operations and our assets in the longer term. So on the first part about capturing value in the short-term, we have started an operational turnaround initiative in Herradura. We started up a couple of weeks ago, a second study about a new mine redesign. And that is important because we'll set the foundations of what we think, the long-term will be for Herradura. We're also starting maintenance efficiency program. That is something that we require. And we have a large fleet with different ages, and we know we need to optimize that in order to provide a better cost base in the future. So we're studying that right now. And we also think we have a good opportunity to capture better recoveries out of our leach pads. So we're starting a couple of studies on that end as well. All that is focused on capturing value as soon as possible. But also, we think we have a very good opportunity in Herradura to create district that could remain in the long-term. We have several assets in the vicinity of Herradura that we think we need to change the approach in order to maximize the return over the installed capacity that we have in there. That's why we're also at the same time that we're optimizing Herradura right now, as we see it, in the big open pit, we're also continuing analysis about the underground resources. We think there is a possibility on the underground resources to bring production even in parallel with the open pit. And that is a great possibility in order to increase the average grade that we can put on the plant in the coming years. We are reanalyzing the potentially reopening of a Valles mine. That is also an underground operation that we had before that still have some reserve in that. And we have the Tajitos project that is 30 kilometers away. We're analyzing the possibilities that we have with Tajitos as a stand-alone project, but also as a potential feed of higher grade ore sent to Herradura. And Guillermo, he will tell us in his portfolio. We also have a good land package with very promising exploration opportunities in the area. So we foresee Herradura, and I'm focusing this early discussion on Herradura because we foresee a great deal of value for the company in the short, but also in the longer term. In the upcoming presentations, we will be sharing as well the strategy moving forward with the rest of our assets and projects.
Octavio Alvidrez: And this goes along the column that we've had in Fresnillo in terms of the strategy, of course, optimizing and getting the most out of the current assets something that Tomás described now, we're focusing on control our margins, focus on margins, cost and operational efficiency. And also, the other one is extending the pipeline of projects. And I would like you, Guillermo, to – over to your presentation, please.
Guillermo Gastélum: Thank you, Octavio. Good morning, everyone. I will provide you with an update of the resource and reserves status at Fresnillo and also some of the progress that we have achieved at the most important exploration and development projects. Well, let's – as Octavio mentioned, we continue to have a very strong base of resources and reserves starting from silver. Year-on-year, we see the resources remain stable, a marginal increase, which was mostly driven by good exploration results at Guanajuato and at San Julián that were offset by the decreases in resources out of our mines, which was mentioned probably were hit by a higher costs, which turned – translated into higher cutoff rates, we had a big impact on the resources and reserves numbers that we're about to see. However, I would like to mention that the decreases you are seeing at Fresnillo and Saucito happened 100% over inferred resources. And overall, the measured and indicated resources were increased over the year. So we load some of the lower quality material in this process. And at San Julián, resources decreased due to mostly the depletion of new designs – new builder designs of the underground operation, which is facing this last year of production at the disseminated deposit at San Julián. The reserves, we are posting at 10% decrease of the silver reserves despite the fact that given good exploration results at Fresnillo, the mine was able to replace the reserves with a surplus of 7 million ounces and the San Julián and Saucito operations, partially took place their reserves. Reserves at Ciénega were badly hit by costs, as mentioned before, and the decrease in reserves at the Disseminated Ore Body at San Julián and Juanicipio was basically due to also to the extraction of the ore bodies since no new reserves have been added to the Disseminated Ore Body at San Julián and also no new reserves at the Juanicipio. We'll move on to the gold. We have – reporting a small decrease on the resources of gold. Again, despite the fact of having an increase of over 0.5 million ounces of gold out of the Guanajuato district and 200,000 ounces new resources from the Centauro Profundo deposit, we're posting a marginal decrease out of Tajitos also. But the most part of the resources decrease comes from the Herradura operation due to mining extraction into higher costs in both, as I mentioned before. And we are seeing – well, the decreases that we are posting for Fresnillo and Saucito, again, over 90% of the resources happened in the inferred category. Going to reserves. We are having a 13.7% decrease of the gold reserves. It will remain over 7 million ounces of reserves where the most significant impact came out of Herradura again because of the extraction and the higher cost in the rest of the operations. So really the difficult to increase resources and reserve from almost fully evaluated open pit. Okay. And we'll give you a brief summary of the progress of projects starting from Orisyvo. We remind you that Orisyvo is a large gold deposit, 9.6 million ounces of gold. And I'm pleased to report that we are having a significant progress on the pre-feasibility level studies and we are expected to deliver the final pre-feasibility study by midyear, and we will start immediately with the feasibility study, which we are expecting to provide the feasibility study by mid-2025 and then submitted to the Board for approval. At Orisyvo, well, we have several studies that are going on. I will focus other than looking for – I’m sorry, let me rephrase this. This is a big deposit that has a higher rate core. So we are evaluating scenarios for an underground operation there and also evaluation for the plausible tailing disposal sites. And some alternatives for mineral processing, which include milling and metallurgical processes that we are expecting that will translate into reduced CapEx and OpEx for this project as it enters its development phase. Moving on to Rodeo, unfortunately, the project remain on standby for 2023. However, we are entering a new phase of negotiations with the communities, with the support of the pro-mining government of the Durango state. But simultaneously, we’ve been advancing some PFS level studies, geo, hydrological, environmental and water and energy supply to the project. If we move to next to Guanajuato, where we have a very intense drill program there, we drill over 83,000 meters. And some of those were actually drilled from underground from the historic workings of the Las Torres and Peregrina operations. We are posting a significant increase of the total resources as mentioned before, 684,000 ounces of gold were added to the resource base along with 122 million ounces of silver. So the total resources in the district amount to around 2.8 million ounces of gold and 275 million ounces of silver. So it’s a very significant district. This is a – remember, it’s a historical district, extensive, that spans along 40 kilometers along strike. And so we are dividing it in three areas, the North, Central and South. So most of the increases are coming from the Central part but most importantly from the Southern greenfields part of the district where we discover a deep, a high grade ore shoot line for 450 to 500 meters below the surface. But as I said, a high grade bane up to a significant structure with average width of 4 meters. And going – moving on to Tajitos, we had a very intensive drill program also slightly over 83,000 meters were drill there. And we completed a new metallurgical study out of outcropping ores. We deliver very good results and as we speak, we are conducting a second phase of metallurgical investigation from samples from previous core drilling. And we are preparing for another metallurgical investigation. And we are having progress a dedicated metallurgical drill program there. So the PEA of Tajitos will be updated later on this year once we finalize the full evaluation of the main resources zone. So Tajitos has resources is slightly over 1 million ounces of gold. But it has a lot of exploration potential to the West of the project. And we have already some good interesting drill interceptions West of the main ore body. So we have a story, there’s a story still to be written out of Tajitos. And I would like to wrap up with the last year highlights. We invested almost $186 million in exploration. We have good results. I will emphasize the good results out of Fresnillo, San Julián and Guanajuato. And also the good progress we are reporting on the PFS studies at Orisyvo. And we are reporting also measure resources and proven reserves at Juanicipio, which are adding to the proven reserves that we already have at open pit operations. And we are having a good progress towards reporting proven reserves in all of our mines. So what we are seeing for 2024, again investing approximately $190 million. That accounts also for mining rights and some fixed assets purchases. But overall, 42% of the budget for 2024 will be devoted to exploration – to brownfield’s exploration at our mines. It will account for 42% of the budget. The next significant part of the budget will be invested in the most important projects that I have just mentioned. 3%, 5% of the budget will go to it to advancing and updating the PEAs at Tajitos and Guanajuato. And once we have access to Rodeo, we are ready to start a very intensive drill program of infield step out metallurgical and geotechnical and fast track Rodeo into the PFS level as soon as we have the land access, which I mentioned at Rodeo is looking favorable this year. And of course, the progress I mentioned of the path from prefeasibility to feasibility at Orisyvo. We will devote a slightly less amount of money 14%, to produce conceptual studies out of advanced exploration projects such as Pilarica, San Juan and Lucerito. We will conduct some metallurgical investigation from the lessons that we’ve learned from the experiments that been running out of Orisyvo about how to treat the gold bearing sulfide ores of Lucerito and Candameña. And also we’ll start drilling in some promising good looking projects, including ones some in Peru as well. Finally, a minor amount will be devoted to continue feeding our portfolio and bringing the most promising looking prospects at the base of the triangle into the drill ready stage. And this is what I have to say about the exploration. So I will the microphone on pass to Mr. Mario Arreguín.
Mario Arreguín: Thank you, Guillermo. If we can go to Page 22, please. Here on this page we show the income statement for 2023 and we compare that to 2022. As you can see in the lines highlighted in yellow, which show the different profit levels, we are lower compared to last year. In terms of gross profit, we were lower by 6%. In terms of operating profit, we were lower by almost 50%. In terms of profit for the period, we were lower 6.5%. And in terms of EBITDA, we were lower 12.7%. Let me start with gross profit, if I may. The $32.8 million reduction in gross profit. If you move up that same column, you will see that there were three major changes from one year to the other. Starting on the positive side, you will see that adjusted revenues were up $272 million or 10.5%. Of the $272 million, 55% of that was due to volume – increase in volume, mainly silver, and 45% of that was due to higher prices, mainly gold and silver. And we will talk a little bit about that when we go to the gross profit. The second most important variation, I would say, was the adjusted production cost, which went up by $178 million or 12.3% and in order to analyze this variation, I would ask you to please go to Slide number 23, where we show a rainbow. I find this chart quite helpful in terms of understanding the different aspects behind this increase. As always, on the far right, you will see the green bar, which represents the $178 million increase in production costs. And if you move to the first bar on the left hand side, you will see that the most important adverse effect was the revaluation of the Mexican Peso. Here we’re talking about the average exchange rate. And when you compare one year to the other, you will see that there was an 11.7% revaluation. And this had a huge impact on our results. We’re talking about an adverse effect of $113 million. Now, if you combine that with column number two, where you see cost inflation, excluding any Mexican Peso effects, that was 3.9% cost inflation, which had a negative impact of $56.9 million. If you add those two bars, you will see that you get to $170 million by combining the revaluation of the Mexican peso together with the cost of inflation, which represents $170 million or 97% of the total variation in terms of adjusted production cost. So one could say simply that these were the two main factors. However, there were a couple of other things going on during the year. On column number three, you can see that the Juanicipio mine ramped up during 2023. Remember that mine started operations in 2022, so we were able to ramp up in 2023. And also we had the startup of the plant in March, April of 2023. Of course, this meant incurring additional cost and that had an impact of $43.4 million. Now, we definitely don't need to worry about this increase because behind this increase there was an important increase in profit, which we will see later on. Moving on to bar number five, you can see there that the impact of longer haulage distances and also the increase in the use of maintenance and contractors at some of our mines. This is excluding any Mexican peso strength or inflation. This is purely the increase in the use of these items. And that had a negative impact of $29.7 million. Now, mitigating all these red bars, you can see on bar number eight, a reduction in cost of $81.9 million. Behind this is the fact that we are now closing the Noche Buena mine, we are now only extracting the gold contents from the leaching pads. We're no longer depositing any mineral, so we're not incurring that cost, and that's the reason behind that reduction in cost. But I think most importantly and worth mentioning is in column number seven, where you see the efforts of the operations in terms of finding cost reductions and economies of scale and efficiencies. And we were able to reduce those costs by $24.7 million. So when you bring all of this together, that's how you get to the final increase of $178 million. If we can go back to the previous page, please, where we show the income statement. So we've spoken about the two most important changes, but there was a third important variation. If you look at changing inventories, you would see that that had a negative impact of $114 million, a very big number. It's worth just spending a minute to understand what happened here. If you look at 2022, the change in inventories was a positive $61.6 million, which means that we had an increase in inventories, basically, at Juanicipio. I'm sure you remember that in 2022, when we started that mine, we didn't have the plant, so we sent the mineral to the Saucito and Fresnillo mines to be processed. However, there was more mineral produced that could be processed at Fresnillo and Saucito. So we started building up inventory. Also, we had an important increase in inventory at the Herradura mine, where we deposited more gold in the leaching pens than the volume that we were able to extract that year. And we had exactly the opposite happening in 2023. You can see an inventory reduction of $52.6 million in 2023. We reversed that increase in inventories at Juanicipio with the plant running, we were able to bring that basically back to zero. And we also had a very important reduction in inventories at Noche Buena. As I said, we're basically leaching the gold contents at the leaching pads. So that means an important reduction in inventories. So when you combine those two effects, that's how you get to the $114 million adverse effect, which is not easy to catch. Now, moving on to gross profit, where we had a reduction of $32.8 million. I think it's worth taking a couple of minutes just to look at the rainbow analysis that we did for the gross profit on Page 24, again, on the far right, you can see the green bar, which represents the $32.8 million reduction. And if we move to the left, you will see the two most important favorable effects, if you will. Firstly, the increase in production of silver that basically came out of the Juanicipio mine, where we had a positive impact of $206 million. Secondly, you can see the effect – the positive effect of the higher gold and silver prices. Gold was up 9% and silver 8.1% in terms of prices. So that had a positive effect of $193 million. We have to look at this together with bar number nine, because in the case of base metals, we obviously saw a reduction in the price of zinc of almost 23% and also a slight reduction in the price of lead of 1.4%. And that had a negative impact of $70.4 million. But when you look at the net effect of prices, you will see that we had a positive net effect of $122 million. If you look at bar eleven, this is the variation that we just spoke about in terms of changing inventories, which was $145 million. This was mitigated by bar number three, where you see the positive effect of the additional ounces that we found in Herradura that were not accounted for. That we reported that in the first half of 2023. On bar 10, we already spoke about the negative effect of the revaluation of the Mexican peso. And bar number 8, we already spoke about cost inflation. So this gives you a clear picture of what was behind that reduction in gross profit. Now, if we go back quickly to the income statement on Page 22, you will see that from the lower gross profit of $32.8 million, we jump to a reduction in operating profit of $141 million. So what's behind the additional $109 million between gross profit and operating profit? Well, to explain that very quickly, you will see that in the line other income and expenses, there was a negative impact of $49 million. And again, we had certain extraordinary circumstances that generated this adverse effect. First, in 2022, you see a positive number there, income of $33 million. And that's related to the recognition of the deal that we did with Orla, the layback agreement, we call it, whereby we allowed Orla to come into our own property so they could expand their pit. And of course, for that we negotiated certain benefits for Fresnillo, and those were registered in 2022. In 2023, you see a negative number, an expense of $15.8 million. Most of that is related to the illegal extraction that we reported in June at Soledad-Dipolos of illegal extraction of gold contents in our leaching pad that had a negative impact of approximately $22 million. So again, you're comparing two very unique circumstances, and that's what generated the $49 million negative number that you see there in other income and expense. Now, another reason for the lower operating profit was the increase in general and administrative expenses. We had an increase of $34 million. And the reason behind that, I would say it was three-fold. One has to do with the fact that the five-year service agreement with Peñoles was concluded in 2023. So we renegotiated that. In 2020 – yes, we renegotiated that and that meant reviewing the unit prices that were charged. For that we hired an independent party to define the unit prices that will be charged from Peñoles to Fresnillo. And, of course, we saw an increase. We have now signed a new five year contract with Peñoles. That was reason number one. Reason number two, in terms of volume, the use of services that we require now has also increased because we have increased mines and we also have increased very specific needs. And the third and last reason, I would say, has to do, obviously, with the revaluation of the Mexican peso. Again, because most of these expenses are peso denominated. Lastly, you see an increase in exploration expenses of 10%, again, the revaluation of the Mexican peso, because a lot of these expenses are paid in pesos. Remember, just the revaluation alone was 11.7%. So that was the main reason behind the increase in exploration expenses. Lastly, I would like to point out a unique event that occurred in 2023. If you look at the income tax expense, it’s actually you see there a positive number of $205 million, which means that the profit for the period of $288 million was higher than the profit before income tax. So the reason behind that, again, was the strength of the Mexico, the super peso, that’s what we call it, which had a very important impact in terms of the deferred taxes, in particular, in the tax value of assets and liabilities. And during the Q&A, if anyone is interested in knowing exactly what’s behind this and what the numbers behind this, I’m happy to explain. But for the time being just mentioned that this is an unusual event, of course, when we define the dividend payment given the fact that this is a non-cash item. And not only that, most importantly, I would say that this can be reverted anytime the peso goes back to the Ps.20 peso level or Ps.22 level that we’ve seen it for many, many years, that effect will revert. So that’s why we did not consider this particular line item when defining our dividend for 2023, our final dividend. Finally, very quickly, on cash flow on Page 25. If you look at the first column in the bottom part, you will see that we closed the year with a cash balance of $535 million. That was a reduction of $434 million compared to our $969 million beginning balance. And clearly you can see here that there were three or four main uses of cash. Firstly, CapEx, of course, $483 million. But an unusual event occurred in 2023, which was the maturity of some of the bonds that we had outstanding for $317 million. That’s in financial expenses, and that is the main reason behind the $324 million cash reduction there. So we paid out those bonds that matured then. We currently have only $850 million in bonds outstanding, and those are due in the year 2050. And I should mention that in order to somehow guarantee the liquidity of the company, we have now contracted a revolving line of credit, what we call a committed revolving line of credit for $350 million with five banks for a five year period. So that facility together with the cash balance that we currently have, we believe will give us sufficient confidence that we have the liquidity to confront any unforeseen event in the future, especially this year where we have elections in Mexico, elections in the U.S. and all sorts of global wars going on. So it’s nice to know that we have that cash available for us. Of course, we pay dividends for $108 million. So if you take out the debt payment and the dividend payment, you will see that we basically would have broken even without considering the dividends and the bond payment. Lastly, the most important cash generation came from the cash generated by operations, which was $649 million, only 12% below what we saw last year. So I would say those are the main features in terms of the financial results. Happy to answer any questions that you might have during the Q&A.
Octavio Alvidrez: Thank you, Mario. Just wrapping up the presentation, I mean, go to Page number 28. You will see on the silver production profile bit downward trend. This recognizes the San Julián disseminator ore body running out of reserves. We’ll continue with the production out of the veins system in San Julián. Juanicipio, of course, is producing according to plan, but is not compensating this San Julián loss. On the gold side, the last years of Noche Buena out of the leaching pad, softer production in 2026. And on the base metal case, lead and zinc, the contribution of Juanicipio, but also I mean higher grades of base metals in Saucito and Fresnillo at depth. Good to mention that in the production profile, of course we are not considering any of the brownfield projects that Daniel mentioned, something that we will be exploring and trying to bring at a faster pace around the Herradura operation. Also we are evaluating some other opportunities in the Fresnillo district. CapEx, I mean quite level over the next years in the region of $500 million, as we are not contemplating any large CapEx amount from greenfields. And then on the consolidated outlook, yes, recognizing the headwinds that we have in Mexico in terms of permitting, we are extending a bit the evolution of our projects, Rodeo and Orisyvo and an indicative program for Tajitos and Guanajuato. As we mentioned before, Tajitos, better setting, we have the ground, the land there compared to Rodeo, something that will try to advance firmly at a better pace. And Guanajuato, in which we had good exploration results will try to do more for this project as well. Orisyvo now prefeasibility A to be finished very soon, going to prefeasibility B. So that’s according to plan. And just to close out, I mean, as we mentioned, prioritize safety across all of our operation, focus on operational efficiencies, cost reduction very importantly on our margins and cash flow generation across all of our operations. Capital allocation discipline is very important. Having very much four projects running in parallel, I would say, is something that we will continue to prioritize. And on the exploration front with Guillermo, of course, good opportunities in Mexico, but also in Peru, something that we start to be drilling out this year, hopefully with good results in areas with good potential and looking forward to the sustainability of Fresnillo. In this short-term area, focusing on our operations and the medium-term and long developing efficiently and with discipline the projects we have. Some external factors worth to mention is, as Mario mentioned, I mean, this year is an election year in Mexico. We expect some volatility on the FX front on the strength of the peso. And also, we are positive on the silver and gold price, of course, with lower rates in the front. And with that, I would like to open up for your questions. Daniel?
Q - Daniel Major: Hi Dan Major, UBS. A couple of questions. Just the first one on the cost outlook for 2024. If we focus on your adjusted production cost line, what’s your expected rate of inflation there? And then just second to that, I mean, I’ve asked this question over the years, why do you not provide group cost metrics like all of your peers on a silver or gold equivalent basis to help the market to refine its cost estimates.
Mario Arreguín: Okay. Regarding the cost outlook for 2024, we’re not expecting to see again the strengthening of the peso, which although I said that last year and it continued to strengthen. So, we’re very, very surprised. But it will be very difficult during an election year for the peso to strengthen anymore. I think it’s reached bottom. So we won’t be hurt by that in 2024, thank God. So in terms of cost inflation, we would be expecting something around 3%. But hopefully and this is very important with some of the initiatives that my colleagues will be implementing in terms of cost reduction and efficiencies this year also – we hope that we were able to reduce compared to 2023 production. Let’s see if we can meet that target. But for the time being, I would say something around 3%, 3.5%. If the peso remains the same. If the values, well, then we will see a reduction, if that were to happen.
Daniel Major: So that’s 3.5% increase in adjusted production costs, not inflation, because you’ve got slightly higher volumes in silver base the midpoint of your guidance.
Mario Arreguín: Cost inflation. Not adjusted production cost 3%.
Daniel Major: If you think adjusted production cost, it was low €1.63 billion. What would you expect that to be – you’ve got 3% inflation, you’ve got slightly higher volumes. Directionally, is that up or?
Mario Arreguín: We will continue to close Noche Buena. So in absolute terms – well, a slight increase in absolute terms.
Daniel Major: In absolute terms, all right. Thank you. And then next question, just on the exploration projects, reserve and resource, dynamic. I guess, is $190 million exploration spend the right number? If we look in the last few years, you’ve been spending a similar amount, group reserves and resources continue to shrink. Your project pipeline hasn’t actually progressed. If we look at the run rate of spend against some of your main London listed peer that spends less than half the exploration yet are growing their reserves and they’ve got projects in the pipeline is $190 million the best use of shareholders’ funds.
Octavio Alvidrez: We believe so, Daniel. I mean, let’s break that down a bit to what we have. Out of that, probably in $25 million, $28 million comes from the concession package that we have in Mexico that this year has proven – well, not this year, I mean, this administration has proven to be a valuable asset as the current administration have not granted any concession – new concessions in Mexico also, we do have 1.7 million hectares in Mexico for exploration ground, approximately 400,000 in Peru and some 150,000 in Chile. So that’s a part. And then also, let’s recognize that our underground mines are, of course, vein systems in which we have to invest. And as Guillermo mentioned in our triangle, approximately 40% of those phones go to confirm. Certainty in our – for our operation in our underground mines. And then the greenfields, of course, we have to devote some exploration funds there, approximately 50%, 45% of the total. And this is what we are about in Fresnillo. I mean, generating our own pipeline of projects. We just finished building Juanicipio. We do have one – two good projects on the pipeline and one exploration discovery in Guanajuato as well.
Daniel Major: Okay, Thanks.
Octavio Alvidrez: Jason?
Jason Fairclough: Jason Fairclough, Bank of America (NYSE:BAC). Can I come back to something we’ve talked about quite a bit over the years, just the grade reconciliation against the reserves. So is it right that the latest reserve statement for Saucito and Fres is $200-plus, $240 million? And year-after-year, you’re mining it sort of $180 million, $190 million and the guidance again is $180 million, $190 million. And I think, Tomás, you had a comment about negative reconciliations against the geology. So my question, is a very fundamental one. Is – are those reserve grades correct?
Octavio Alvidrez: Yes. Thank you for your question, Jason. We feel comfortable in the rates is about the metal content in the reserves and something that we confirm this last two, two and a half years with the guidance. I mean if somehow we were not confident in geological model. Of course, we would not be able to project what we were estimating in production. So the ounces are there, of course, we still have some reconciliation in some of our mines still to tighten that process. But I would mention that the ounces are there, it’s just about how we mine those reserves. And we continue to study the case, not only the study, but I mean tighten in terms of dilution control and the rightsizing of the equipment and all that involves mining. But the larger confidence, as I mentioned, is that we are producing the ounces we are expecting.
Jason Fairclough: Just to push you on this a little bit. Why wouldn’t you adjust your dilution factors in thinking about the reserves, because I mean, the amount of metal will be the same, maybe mine it as quickly. And then we won’t have this sort of question year-after-year, because honestly, Octavio, I think it’s four or five years now that we’ve been talking about this. Four or five years you’re mining consistently below the reserve grade. And it’s not getting better. Is that unfair?
Octavio Alvidrez: I think it’s a bit unfair because, of course, the reserve statement is a photograph of the – at the end of the year. What we have for the different assets at that point in time? For Fresnillo and Saucito, you would expect that going to adapt the increase of base metals and the decrease of silver in general terms. When we mentioned two years ago that Fresnillo was going to produce a bit more silver we did. I think this is the opposite case. But then going to another example, for example, in CP higher grade now in the future and in the reserve statement. In the future, in the following years, you will continue as it is a trend in the Fresnillo district. Trending down with silver, something that you see in this statement, in this production sequence that we have for 2024 increase as well in base metals. But the reserve talent would be higher compared to what we produce on a yearly basis. So it depends on the mine. And what we are comparing is the production of a specific year or the current year compared to that photograph that we have on the reserve seven, eight, 10 years of reserve rate.
Jason Fairclough: So last follow-up, sorry.
Octavio Alvidrez: Yes.
Jason Fairclough: So in the medium term, if I think about my model for Fresnillo, for Saucito, should I be assuming that the grades that go into those concentrators come up to 240?
Octavio Alvidrez: In Fresnillo, yes, that's what we have in the following three to four years. In Saucito, it depends very much on the sequence, on the mining sequence, specifically for each one of the years, it could be a bit higher, a bit lower. But in Fresnillo, yes, we can expect that in the following two to three years.
Jason Fairclough: Okay, thank you.
Octavio Alvidrez: Yes. Yes.
Richard Hatch: Hi. Good morning. Richard Hatch from Berenberg. And first question I've just got on your CapEx profile. If I look at this year, you're guiding to 440 million. If I look at the H1 results from the summer, it was 530. So, can you just explain where that 90 million has gone?
Octavio Alvidrez: In the CapEx profile and then you go to which year?
Richard Hatch: Slide 29. 2024. I think I'm right, yeah. If I look at your H1 results from the summer, CapEx for…
Octavio Alvidrez: That's in 2024, you mean, or…
Richard Hatch: Might be.
Daniel Diez: What you were expecting?
Richard Hatch: Yes. You were expecting, yes, so in the summer, you were expecting 530 million for CapEx this year. And your guidance this year now is 440 million. So there's a 90 million difference. So where's that 90 million gone?
Octavio Alvidrez: What we respect in compared to what we deployed in terms of CapEx…
Richard Hatch: Your previous CapEx guidance for 2024.
Octavio Alvidrez: Okay. Okay. And for 2024?
Richard Hatch: Yes. It was 530 million and it's now lower at 440 million. So can you clarify what's the difference?
Octavio Alvidrez: Yes. I mean, some of that was referred to some equipment that we were expecting, I mean with the labor reform, we didn't know which contractor companies were staying with the company or not. And we were forecasting in case of those companies would not remain with the company. Some equipment purchases, some of those remain with the company and then we didn't need to deploy that equipment. Also what we were forecasting was higher rates of development expected higher rates of development at Fresnillo and also at Saucito. After a study we did last year was that we confirmed that the 3,000 meters per month was the proper development rate in Saucito and also in Fresnillo. But we were forecasting, let's recall, 3,500 or so higher development rates. So that's an adjustment to the CapEx figure as well.
Richard Hatch: Okay, understood. And the second one is just on Herradura. You kind of talked a bit about some plans for the project. Daniel’s talked about that. Are you able to sketch out a bit about where you think that asset could potentially get to in terms of volumes, anything more broadly, or is it too early to guide on that?
Octavio Alvidrez: I think it's a bit early, but let's recall what we've done in the past. And that's based on Daniel’s comments was based on what we did in the past and what we have for the near future. On the walls at different levels in Herradura, we do have ore that is entering to the other direction, not to the open pit. Of course, we were mining those badges and that we called at the point time, Centauro, Profundo, Centauro dip and we were producing approximately 30,000 ounces, 35,000 ounces per year, more or less. We said, well, this is not the right approach because we were doing it with big effort, with [indiscernible] at a point in time. And so let's study the case, something that we are doing and we'll continue to do. Let's find a more mechanized way to bring that ore to production. And that is one of the areas that we will continue defining, but a more mechanized way. So if we were producing 35,000 ounces per year on a very artisanal way of doing it in a more mechanized way, I think we can do much more and a better cost. This is just to give you an example of what we are trying to do of as brownfield new production, which is not reflected here.
Richard Hatch: Okay, understood. Thanks. And the last one is just on Juanicipio. I just wonder if you might be able to help us with either a guided cost per tonne for 2024 or where we should think that this asset kind of shapes out to Daniel's point, it's quite challenging to model the company if there's no cost guidance. So if we can have – if you're able to give something on Juanicipio, which is obviously incredibly low cost and can really help the business, can you help us a bit about that? What it looks like in 2024?
Octavio Alvidrez: Yes, we have additional information in our front of what we are reporting. But let me just mention what we have reported is for 2023, of course, with an operation which is running on a smooth path. Let's remember that we had to haul some of the ore to Fresnillo with some cost and process it in the plants of Fresnillo, also to Saucito with a higher cost and process it in the Saucito flotation plant. And also we were doing some development ore that is more diluted, of course, lower grade. So it was not what we expect for the following years on a producing out of the production stops all being processed in the flotation plant of Juanicipio itself. So we are expecting lower cost. But Tomás, can you mention something?
Tomás Iturriaga: Yes. The cost per tonne and I think that will be reflected in what we is around $100 and $510 per tonne of ore.
Richard Hatch: This financial year 2024.
Tomás Iturriaga: 2023.
Richard Hatch: Okay.
Octavio Alvidrez: No. 2024.
Tomás Iturriaga: 2024.
Richard Hatch: 2024. Helpful. Thank you.
Sandeep Peety: Good morning. Thank you for the presentation. This is Sandeep Peety from Morgan Stanley (NYSE:MS). I have two questions. One is on coming back to sustaining CapEx. So for 2024, you are expecting sustaining CapEx to be US440 million. This is expected to increase to 500 million by 2026. At the same time, the silver equivalent production is expected to decline. Can you explain the anomaly?
Octavio Alvidrez: Sorry. Can you repeat that question again?
Sandeep Peety: Sustaining CapEx. Silver equivalent production is trending down versus 2024 levels. So in theory, sustaining CapEx should have been lower per tonne of production.
Octavio Alvidrez: Well, let's recall that our mines continue to go deeper and also we need to develop along strikes Fresnillo, Saucito and of course, Juanicipio. We also have another component which is Juanicipio on the sustaining part of the business. Also the Pyrites plant of Fresnillo, which we just connected at the end of last year. That's another component of sustaining cost. What else, Mario?
Mario Arreguín: Maybe increased mine development because of that reason. Going deeper and along strikes, basically.
Octavio Alvidrez: Yes. But what we guided before, even as a rough number going forward in terms of sustaining was 480 to or 470 to 500, which is very much what we have.
Tomás Iturriaga: Octavio, if I may…
Octavio Alvidrez: Yes.
Tomás Iturriaga: So for that year, expansion of the tailings dam at Herradura is scheduled at Ejido as an item that will affect Bajío [ph] specifically.
Octavio Alvidrez: That is correct. And it's good that you brought that. We are expanding San Julián as well in the following few years and the Herradura tailings dam as well.
Sandeep Peety: All right. And the second question is around the zinc treatment charge. So which has like if you look at the spot treatment charge, it's close to USD 100 per tonne. 2023 settlement was USD 274 per tonnes, i.e., it has declined significantly. Silver and gold is sort of a black box. So overall, if you were to think about 2024, what are you thinking in terms of zinc treatment charge?
Octavio Alvidrez: Yes. You are right. I mean, our concentrates, of course, and our deal with Met-Mex Peñoles follows the trend of the concentrate benchmarks at international terms is correct what you mentioned. What we did notice and I think that will continue. It's a good refining charge – a better refining charge from going from 2022 to 2023, lower refining charge, something that we foresee to continue in 2024 because of the demand for concentrates with high silver and gold content. Also and now they're in the spot market, I mean, the copper concentrate as well as lead are – the smelters are being very aggressive recently. Some payments even for the copper content, of course, on the lead concentrates as well. So we believe that will continue to be the case and either a treatment charge at level or – is what we are forecasting.
Sandeep Peety: All right. Thank you.
Unidentified Company Representative: We've got some questions on the line. If that's okay, we can go to line and then go back to the room.
Octavio Alvidrez: Okay.
Unidentified Company Representative: So operator can we?
Operator: Thank you. [Operator Instructions] And your first question comes from the line of Amos Fletcher from Barclays (LON:BARC). Please go ahead.
Amos Fletcher: Yeah. Good morning. Couple of questions; first one is, can you just talk us through the lower production guidance in 2026 compared to 2025 and which assets are driving that?
Octavio Alvidrez: Yes, of course, on the silver side, probably and I will refer to the gold side in a minute as well. On the silver side, in 2024 we have San Julián with the two process, the vein system and also the Disseminated Ore Body. We will be mining the last reserve this year and probably a bit a couple of months next year of San Julián Disseminated Ore Body. Let's recall that the disseminated portion of San Julián produces approximately 7 million ounces of silver. And running out of reserves for 2025 and 2026, which we would not be producing out of this ore body, we will have that lower silver production. That is very much the...
Daniel Diez: Its San Julián Disseminated Ore Body.
Octavio Alvidrez: Yes. I don't know if you were asking the same for the gold production. But back in 2026, of course, we are not forecasting any production out of Noche Buena, a bit softer production out of Herradura as well is reflected there.
Amos Fletcher: Okay. Thanks. And then my second question was just on M&A. You guys mentioned a couple of times in the statement. Could you talk to us about what you're thinking about on the M&A front, please?
Octavio Alvidrez: Yes. Thank you. That's another way, of course, in our growth strategy, something that we are doing more formally and systematically now. I mean we have not found anything to – that would fill the requirements that we are looking for in terms of cost of jurisdiction and of course, a near production to cover what we are looking for. But what Mario mentioned in terms of the credit facility that we have and also the cash in our balance sheet, of course, just to be ready with any opportunity that may be present.
Amos Fletcher: Okay. So I guess, just to clarify a little bit on that. You're looking at jurisdictionally presumably within Mexico and project level companies where – which you can take it into production?
Octavio Alvidrez: Well, with the difficulties that we have in the environment to operate mining in Mexico, there are some opportunities present that we are also kind of exploring, but that wouldn't comply. It's not – I don't want to mention that we're not pursuing or just looking at those. But I mean it's not something that we will be on our priority list. We do have projects to develop our own in Mexico, but better probably another jurisdiction to lower the risk.
Amos Fletcher: Right. Thanks very much.
Operator: Your next question comes from the line of Krishan Agarwal from Citigroup. Please go ahead.
Krishan Agarwal: Hi. Thanks a lot for taking my question. You mention that – Mario mentioned that there are no cost initiative the organization is taking in terms of regaining the contractor cost and the fixed cost structure and also some of the operating materials in the region? And is there any way can you help us quantify the internal target for the cost reduction initiatives? That's my question number one.
Unidentified Company Representative: Can you say that again, sorry.
Octavio Alvidrez: I think we didn't catch quite clearly your question.
Unidentified Company Representative: Yes, can you help quantify the internal target for the cost reduction initiative?
Octavio Alvidrez: Cost reduction initiatives. Yes, can you talk more specifically about those, Tomás?
Tomás Iturriaga: The value?
Octavio Alvidrez: Well, expected value in terms of ranges also...
Tomás Iturriaga: Ranges, say, yes. For example, the preview of the cost unit on the contractors around $20 million there initially, although we are in the first stage of the analysis. Reagent and operational materials and other 10 million to 15 million in the project basically. I'll say 40 million to 50 million in the projects there that we have spotted so far. And that's to be achieved during the year, right. And I'm talking about – for instance, the contractor review will be one-time impact, favorable impact. The reduction on operating materials and the rest of the projects would be ongoing, right? So...
Octavio Alvidrez: Yes. In some of the fronts as well, of course, we are looking at our corporate and administrative expenses, of course, trying to maintain the same, but even decrease those. I mean the first one would be a reduction in the terms, but I mean also looking for a reduction in all of the fronts. Yes.
Krishan Agarwal: Yes, yes. I think that was very clear. The second question is more of a clarification. Mario mentioned that there was 82 million of cost out from Noche Buena in 2023. Just to clarify is there any further cost you can take out from Noche Buena using the operation or the bulk of the cost out is already done from that operation?
Tomás Iturriaga: I would not expect more reductions, given that the mine has already stopped. That's what is reflected there. And going forward, it shows the extracting cost of the remaining inventory in the heap leach pad. That's it.
Krishan Agarwal: Okay. Very clear. Thanks a lot.
Octavio Alvidrez: Thank you, Daniel.
Operator: There are no further questions. I will now hand back over to management for further questions in the room.
Daniel Major: Hi, Dan from UBS a couple of follow-ups. The first question on Ciénega, I think I might have asked this question in the summer or last year. I mean your all-in sustaining cost over $3,000 an ounce, doesn't appear that you're communicating that, that – there's a dramatic cost reduction planned, the grade is actually lower this year. Why are you still operating the asset when it's cash negative?
Octavio Alvidrez: Yes. Thank you, Daniel. And you're absolutely right. I mean I'm just glad to report if we were to see the financial performance of Ciénega quarter-by-quarter. We could realize that quarter three was okay but quarter four this year was much better. Turning point to Ciénega. The management team there, the General Manager, overseen by – in this case now, but Tomás in last year and now Daniel doing a good job. And what we have forecasted for this year is a different Ciénega, not on the red side, but I mean back on the black, of course, something that we will continue to do. That was one of the main aspects that we were to – that we were going – we were in our plant – that we had in our plants. And let me tell you that not only Ciénega, but also San Julián. In San Julián from a two different process with a higher fixed cost, of course, and running our reserves in one of those ore bodies. We will need to review and we are doing it and glad to report that we see a way forward with a much lower have fixed cost and just operating out of the main systems.
Daniel Major: Okay. Thanks. Just another one – back on the project pipeline, et cetera. There's been various reports of no new open pit mining concessions being granted going forward in Mexico from the President. How does that impact your thinking about your project pipeline and where you're allocating exploration dollars? I mean, it doesn't seem that there's a huge amount of opportunities in the open pit segment. When I look at Slide 30, how does that impact your plans and where you're kind of looking to explore as well.
Octavio Alvidrez: Yes. I will start, and then I will ask Guillermo to complement my answer. Absolutely right. I mean the 1.5 million hectare of exploration ground is in very good prospecting areas in Mexico. When we first had the view of the initiative for the mining reform. We were very concerned have about being able to explore that land and those land concessions. Now I can confirm that we will be able to do the exploration there, at least for those that we had. The new ones, we have more difficulties. But at least that land package is still viable. What comes as a negative effect is the permitting process right now. For exploration, you need to do some initial permitting, something that has proven to be a bit more difficult. And that's why we are extending in a way the permitting process in our projects. But we will have enough concession to explore. And do you want to talk a bit more about exploration?
Guillermo Gastélum: Yes. Well, our claim back in Mexico is a very significant one, 1.7 million hectares, which are located in the best precious metal belts of Mexico, which are in Sierra Madre Occidental (NYSE:OXY) and the Central Mesa along with most of the epithermal and historic high-grade precious metal deposits are along with the northwestern part of Mexico where this Herradura type of deposits can be found. So it still remains a significant exploration potential still to be – that we can look for in these concessions.
Octavio Alvidrez: In terms of Herradura, I would say, we could have exploration activity with that land package for following, what, eight, 10 years.
Guillermo Gastélum: At least, yes.
Daniel Major: My question was I thought that no more operating permits for open pit mines would be granted. That was – so if you find something and you can't build a mine why are you exploring.
Octavio Alvidrez: Yes. Dan that has come into the mining space in Mexico. What I can tell you is we continue to dialogue with the administration at all levels, federal through the Mining Chamber of Mexico with the economy, The Secretariat of Economy, which had the mining industry in Mexico, but also at the state level, and very productive dialogue there and also at the municipal level. We believe that comes at a point in time in Mexico, along with the election as an election factor. So we will see. And having so many years of mining experience in Mexico, we continue the dialogue with – we will continue the dialogue with whoever heads the federal administration after the elections, of course. Given the fact that of the contribution of mining in Mexico and in some states, the relevance of the open pit mining is very large, for example, in Sonora, in Zacatecas as well. Durango, as we mentioned, Chihuahua. We believe that the country and the specific areas are better off with mining. The current standards we have, international standards for mining than without mining even the open pit supports.
Guillermo Gastélum: Any propose change installation has not been approved. So.
Daniel Major: Okay. Right. Thank you.
Patrick Jones: Hi, Patrick Jones, JPMorgan (NYSE:JPM). Given San Julián DOB and Noche Buena coming to the end of the mine life, you have some closure costs to do. Can you comment whether those would be significant at all? If so, can you quantify that over the next couple of years?
Octavio Alvidrez: Closure costs.
Mario Arreguín: Yes. We've recognized certain reserves accounting-wise, based on studies that have been done by outside advisers. And based on that, we have been reserving for provisioning for the closure of mines. So that has already been considered, yes. In terms of the amount of money for the closing, do you have an estimate for Noche Buena?
Tomás Iturriaga: I can't tell you from top of my mind, but we'll get back to you on that. I don't have that figure from top of my mind.
Patrick Jones: Thank you.
Operator: No, questions on the phone line, so this still wrap up.
Octavio Alvidrez: Okay. Well, thank you very much. We will continue to describe the process. And as I mentioned, I mean, it's about focusing on controlling and paying more efficient on the current operations. And at the same time, developing the best way we can and the projects we have on the pipe. Thank you very much. Thank you, all.
Mario Arreguín: Thank you.
Guillermo Gastélum: Thank you.
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