Fresnillo working through water issues at San Julián

Fresnillo is advancing permitting for a reservoir at its San Julián mine, delays to which have impacted production at the silver-gold asset.

Mexico City-based Fresnillo last week lowered its 2018 silver production guidance due to water availability issues at San Julián, which required the company to amend its mine plan for the operation.

Of San Julián's US$515mn capex, US$15mn was earmarked to build the reservoir, but this has been held up by slower than expected permitting, CEO Octavio Alvídrez told the H1 earnings call.

"This permitting process is subject to an indigenous consultation, one of the first ones in the mining industry in Mexico, but I am glad to report that process, although at a slower pace, is going very well," he added.

Following engagement with local communities, which included inviting residents to monitor water upstream and downstream of the mine, Fresnillo is ready to conduct the consultation, the CEO said.

"We don't foresee any difficulties but it has taken longer than expected."

Following the consultation and permitting approval, construction of the reservoir is expected to take 12 months, Alvídrez told the call.

However, the issue has been temporarily resolved as the company has been able to secure alternative sources of water.

"Even with that [12-month] construction period we don't foresee any difficulties as we have some measures in place to provide enough water for next year," he added.

EARNINGS

Fresnillo recorded US$229mn of profit for H1, down from US$310mn in the same period last year.

Earnings were impacted by a US$11.8mn foreign exchange loss, compared to US$3.8mn in foreign exchange gains in 1H17.

Revenue increased to US$1.12bn from US$996mn, due partly to higher silver and gold production. Cash and other liquid assets totalled US$709mn at end-Q2, a 19.9% decline from the same point last year.

Fresnillo has six operating mines, all in Mexico, and projects and exploration assets in Mexico and Peru.