Fresnillo H2 Earnings Call Highlights

Fresnillo (LON:FRES) reported what management described as record financial performance for 2025, supported by higher precious metals prices, continued cost control, and stable operating results. Chief Executive Officer Octavio Alvídrez said gold production exceeded guidance while silver output was in line with expectations, which he attributed to a stabilization across operations and progress on efficiency initiatives.

Operational performance and cost initiatives

Alvídrez said the company achieved $46 million in cost savings during 2025 through various initiatives, with the majority coming from the Herradura District. He added that cost control will remain a priority in 2026 as the company begins to see early signs of inflation in its operations.

In the central region, Chief Operating Officer Tomás Iturriaga said the Fresnillo district delivered a “solid year,” meeting production expectations and advancing projects across mines:

• Fresnillo mine: The company halted a production decline seen over the previous two years. Silver grade increased 10% year-on-year, offset by a similar decrease in throughput due to lower vein width and shorter stop lengths in certain areas. Iturriaga said progress in dilution control contributed to the higher grade.
• Saucito: Silver production was slightly lower due to reduced processed volume driven mainly by equipment availability issues and permitting delays for ventilation raises. Iturriaga said the relevant permits have now been obtained and the company is expecting improved performance in 2026. Lead and zinc production were described as strong.
• Juanicipio: Iturriaga said operations were strong, with silver and by-product metals at or above expected levels and an expected decline in silver grades.

Iturriaga highlighted upcoming work at Saucito, including interconnection of the Jarillas shaft, scheduled for completion by Q3, and said the required shutdown will affect 2026 production and costs but is expected to deliver benefits starting in 2027 through lower haulage costs. At Juanicipio, the underground conveyor project is scheduled for commissioning mid-year; installation will require a shutdown of a main hauling ramp, increasing costs in 2026 with expected benefits beginning in 2027.

In the northern region, Chief Operating Officer Daniel Diaz described a strong year at Herradura, where annual gold production came in significantly above expectations and supported the company exceeding its 2025 gold guidance. Diaz said the result was driven by operational excellence and cost control initiatives launched in 2023 and consolidated in 2024, including optimized drilling patterns to improve heap leach recovery and enhancements to DLP plants to increase throughput.

Diaz said the company is completing construction of a new carbon-in-column plant during the current month and is advancing engineering for a sulphide crushing circuit and ADR plant targeted to be built and operating “somewhere next year.” He said 2026 spending at Herradura, including structural and sustaining investments, totals around $170 million and that projects were evaluated with payback periods of between eight months and 1.5 years.

At Cienega, Diaz said 2025 was more difficult, citing metallurgy issues that disproportionately impacted silver production. He noted silver production fell from 4.8 million ounces in 2024 to 2.8 million ounces in 2025, and said the issue was specific to one zone that the company expects to deplete during the first half of the year. Diaz also discussed a new high-grade gold discovery, the Victoria Complex, which began delivering results in Q4 2025 and is expected to support production in 2026 and 2027. At San Julián, Diaz said the transition from operating two deposits and plants to one was completed with positive production results, including higher gold output and sustained silver production; he reported 2025 all-in sustaining cost of $19.8, consistent with the company’s target of keeping AISC below $20.

Resources, reserves, and the Probe Gold acquisition

Vice President of Exploration Guillermo Gastélum said 2025 resources and reserves figures were current as of April 2025 and do not reflect higher precious metal prices seen more recently. He noted silver resources declined by 8.5% due to application of the “reasonable prospect of eventual economic extraction” (RPEEE) principle, which he said is becoming a required disclosure standard, but added the remaining resources have a higher likelihood of conversion into reserves.

Gastélum said gold resources increased 14%, driven mainly by exploration results in the Herradura district and at Lucerito and other projects in Mexico. On reserves, he reported silver reserves rose 9.4%, with most replenishment in the Fresnillo district, and gold reserves increased 7.4%, mostly from Herradura.

The company also highlighted the acquisition of Probe Gold in Canada, which management said added around 10 million ounces of gold resources, largely at the Novador project near Val-d’Or, Quebec. Gastélum said Fresnillo retained Probe Gold’s key personnel and continued ongoing drilling, adding that a pre-feasibility study for Novador is expected by mid-year (around July). He clarified that production is scheduled to commence in 2032.

Gastélum also outlined exploration spending and a step-up in budget. The company spent $175 million in 2025 drilling slightly over 800,000 meters across Mexico, Peru, and Chile, with about 80% allocated to brownfield exploration. For 2026, Fresnillo plans to increase the exploration budget to $308 million, with 35% devoted to advanced exploration projects.

Project pipeline updates

Management discussed several projects across the pipeline, emphasizing near-term brownfield opportunities and longer-lead greenfield developments.

• Valles (Herradura district): Diaz said rehabilitation work begins in Q3, with production expected to commence by mid-2027. Expected average production is 60,000–80,000 ounces per year for around seven years, using Herradura’s processing facilities.
• Noche Buena restart: Diaz said the company expects to restart operations early next year, with average production of 40,000–50,000 ounces per year for the next eight years. In Q&A, management said expected all-in cost is $2,100–$2,200.
• Herradura Underground: Diaz said conceptual studies have been completed, with a definitive PEA scheduled for 2026 and an expected start around 2031, targeting 120,000–160,000 ounces per year.
• Rodeo: Diaz said the company is starting a PEA for optimization and expects completion before the end of Q2. Current expectations are 75,000–90,000 ounces of gold per year, potentially starting in 2029 with an 8–9 year mine life.
• Guanajuato Sur and Orisyvo: Iturriaga said conceptual studies at Guanajuato Sur produced “excellent results,” with the project expected to start production by 2033. For Orisyvo, he said the company completed pre-feasibility A studies, conducted a third-party review to improve economics, and is advancing to pre-feasibility B and permitting engineering, with expected average production of 180,000–220,000 ounces per year and a projected start in 2033.

Record financial results, taxes, and capital allocation

Chief Financial Officer Mario Arreguín said 2025 results were “record high numbers.” He reported gross profit increased 114% year-over-year, operating profit rose 142%, profit for the period increased by almost 600%, and EBITDA was 81% higher than last year.

Arreguín attributed margin expansion to stronger pricing and lower adjusted production costs. He said adjusted revenues increased by about $1 billion, while adjusted production costs were down by almost 11% compared with the prior year. In discussing revenue performance, he said sales volumes were lower, including 11% less silver sold and 4.5% less gold sold, but those effects were more than offset by higher prices.

On costs, Arreguín cited a favorable effect from the average Mexican peso exchange rate, which reduced costs by about $52 million, partly offset by cost inflation excluding FX of 3.2%. For budgeting purposes, he said the company assumed approximately 6% cost inflation for 2026 (excluding the impact of the peso).

Arreguín also addressed volatility in reported tax expense, attributing it to exchange-rate effects. He said provisional tax payments and other tax-related cash outflows increased, and he warned that provisional tax payments in 2026 are expected to be higher due to higher revenues and a higher factor applied to those payments. He also said the company expects a sizable cash outflow related to 2025 taxes when the tax return is finalized.

Fresnillo ended 2025 with what Arreguín called a record cash balance of nearly $2.8 billion. He also said short-term liabilities rose sharply due to tax payments expected in the following year.

On capital returns, management announced a record $950 million dividend for 2025. Alvídrez said this represented 69% of earnings, above the company’s stated policy, while emphasizing the dividend policy remains unchanged. Arreguín said the company’s IPO-era policy targets a payout of 33% to 50% of profit after tax (with adjustments), but Fresnillo has historically paid at least 50% or more.

Arreguín said 2026 planned uses of cash include the final dividend payment, a $765 million CapEx budget, the $550 million payment for the Probe Gold acquisition (paid in January), and the $308 million exploration budget. He also said the company is prepared to invest around $3 billion in growth projects over the next five years, while remaining open to disciplined M&A. In Q&A, he said the board could reevaluate the possibility of an extraordinary dividend if high prices persist and cash levels remain strong.

2026 outlook and reserve price assumptions

Alvídrez described 2026 as a transition year for both silver and gold. He cited factors weighing on 2026 silver guidance, including mine sequencing at Fresnillo, the Saucito shaft connection, and Cienega’s shift toward being more of a gold mine. He said the company expects higher silver production in 2027 and 2028 as those constraints ease.

During Q&A, management also discussed metal price assumptions used for reserves and resources. Alvídrez said the company used $2,100 gold and $26.50 silver for reserves and $2,300 gold and $30 silver for resources in the statement, and that it is beginning a process to increase assumptions to $2,800 gold and $33 silver for reserves and $3,000 gold and $35 silver for resources. Management said the most meaningful sensitivity to higher prices would generally be in open-pit and disseminated deposits, particularly at Herradura.

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.