World’s largest silver producer Fresnillo is a leading precious metals group based in Mexico. Its flagship Fresnillo mine has been in operation for almost 500 years. Mexico Mining Review sat down with CEO Octavio Alvídrez to ask him about the company’s growth strategy, expansion plans, new projects and how San Julián coming online affects the operator’s silver outputs.

 

Q: What factors helped Fresnillo increase its silver production in 2017 despite an overall drop in global production?

A: Our long-term vision has been key to our ability to maintain high production rates no matter the price cycle. It is our main differentiator. We invest in exploration continuously and through the cycles and are not dependent on M&As; 95 percent of our growth is organic. This gives us the possibility of bringing onstream projects that are strong and able to withstand the cyclicality of the mining industry without diluting the quality of our portfolio. Our strategy has allowed us to become one of the few companies that still has a strong growth pipeline despite the downturn. In 2017, we produced 53.3 million ounces of silver and 930,000 ounces of gold making Fresnillo the world’s largest silver producer and the number one gold producer in Mexico.

Q: How are rising base metal prices impacting Fresnillo’s operations?

A: All our mines are primary silver producers and we produce base metals, zinc and lead as a byproduct. As prices improve, base metals can become a more important source of revenue. Traditionally, our revenues in terms of lead and zinc only accounted for 7-8 percent of our total but last year these metals rose to 12 percent of total revenues. This helps increase the competitiveness of our mines and improve results.

Q: What criteria does Fresnillo use for new projects before incorporating them into its portfolio?

A: We expect all our projects to have a minimum of 150 million ounces of silver when it comes to reserves or 3 million ounces of gold for us to consider it suitable for our portfolio. Most of our mines are also in the first quartile in terms of production costs so this is a key aspect to consider in our projects before we think to develop them. We prioritize a stream of quality production ounces in our portfolio. The project also must be able to provide at least 15 percent IRR that can be achieved with higher grades or competitiveness in terms of the investment required to develop it.

Q: Why does the company believe that San Julián can become a new mining district in Mexico?

A: San Julián is our latest operation and it has been the largest investment in our company. We invested a total of US$515 million along the feasibility study lines but we also considered the larger exploration potential of the district. By only exploring approximately 30 percent of the area we were able to develop a mine and this makes us believe that resources and reserves would continue to increase for many more years. In the first two years alone, we were able to increase the reserves we had initially identified in our feasibility studies. We have two different ore bodies in the area, one of which is disseminated and requires a flotation process while the other is a vein system that uses a dynamic leaching process. We had to invest such a large amount in San Julian because of the two different processes required and the initial lack of infrastructure in the area, but its positive return and the additional potential drove our decision to follow through with the project.

Q: How important is it for Fresnillo to diversify its areas of operation?

A: In Mexico, we have 1.8 million hectares of exploration concessions and have many targets to explore but we believe that it is always healthy to diversify. The company has identified exploration opportunities in Peru and Chile and is scouting Argentina. We see Peru as a good country to enter as it has the culture and tradition of mining. The company also found that when comparing the ore bodies that have been discovered in Mexico and Peru, there are larger possibilities of a major discovery in Peru.

We used a different strategy by entering Peru four to five years ago since most mining companies at that time were reducing exploration in the country. We now have more than 350,000 hectares of concessions, which gives us the largest holding for exploration in Peru. But we have not been able to advance because permitting takes  longer than in Mexico. Eventually, we will be able to develop more resources for exploration in Peru and we have hopes that Pilarica will become our first operation in the country. We are already halfway to the minimum resources needed, with 60 million ounces of silver in identified resources and further potential to grow. It is a silver and zinc ore body. In Chile, we have reviewed 120 different prospects and projects and the next step is to confirm an exploration option and put holes in the ground.

 

This is an exclusive preview of the 2019 edition of Mexico Mining Review. If you want to get all the information, plus other relevant insights regarding this industry, pre-order your copy Mexico Mining Review or access our digital copy of the 2018 edition.

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