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Edited Transcript of FRES.L earnings conference call or presentation 26-Feb-19 9:00am GMT

Full Year 2018 Fresnillo PLC Earnings Call

London Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Fresnillo PLC earnings conference call or presentation Tuesday, February 26, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David A. Giles

Fresnillo PLC - VP of Exploration

* Gabriela Mayor

Fresnillo PLC - Head of IR

* Mario Arreguín

Fresnillo PLC - CFO

* Octavio M. Alvídrez

Fresnillo PLC - CEO

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Conference Call Participants

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* Alan Henri Spence

Jefferies LLC, Research Division - Equity Analyst

* Daniel Edward Major

UBS Investment Bank, Research Division - Director and Analyst

* Grant Sporre

Macquarie Research - Head of European Metals and Mining Research

* James Andrew Keith Bell

RBC Capital Markets, LLC, Research Division - Analyst

* Jason Robert Fairclough

BofA Merrill Lynch, Research Division - Head of the Developed & Emerging EMEA Metals and Mining Equity Research

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. And welcome to the Fresnillo PLC preliminary results. (Operator Instructions) I must advise you all that today's conference is being recorded on Tuesday, the 26th of February, 2019.

I should now hand over to your first speaker for today, Octavio Alvídrez. Please go ahead.

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Octavio M. Alvídrez, Fresnillo PLC - CEO [2]

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Thank you very much. Good morning, everyone and welcome to the Full Year 2018 Preliminary Results of Fresnillo PLC. My name is Octavio Alvídrez, CEO of the company and here with me, I'm joined by Mario Arreguín, our CFO; David Giles, our Vice President of Exploration; and the team here in London. Thank you all. Disclaimer first. And together we will cover the following agendas, strategic performance, HSECR, the highlights in 2018, of course the operational performance, exploration results, the financials and 2019 outlook.

Since we listed in London, in the London Stock Exchange in 2018, we have successfully established a -- and built a track record. We have been following a consistent strategy, I would say. And that has given us good results. The long-term view investing in exploration through the cycles, bringing on stream and developing only those projects that make sense, in order not to dilute the quality of our initial assets. Strong balance sheet gives us the possibility of further investment in our business. That's why in distant view, we have doubled the silver resources and we have reached 39 plus million ounces of silver and gold resources as well. Through the presentation we will see that the assets that we've brought on stream are of the similar quality and even better than the initial assets. All of this in a disciplined approach to development. Also we will have some examples in order to point that, clear that whenever we bring a project is because it has withstand the different indicators or KPIs that we have. And whenever we feel comfortable, that's the only way we develop a project. All of this and based in a sustainable business practices that we have through all of our processes.

In health, we've been able to decrease the reduction and reduce the new cases year-on-year, occupational health. Unfortunately in safety, this year, 2018 was a challenging year. We had 5 fatalities and in the last quarter in 2018, in the HSECR committee, we agreed to launch a safety program that we have based as -- or we have piloted in Saucito. This year in 2019, we will undertake this largest, I would say, the largest safety program to training at all levels, 100% of our people with this new approach, an approach that has to do with risk awareness, an approach that has to do with reinforcing what we had, not a new program but just building and what we have had through all these years and making sure that our leaders at the different mine operations really stand up and really stand out because of the leadership in safety.

Of course, environment and community relations are important in this more than mining that we have been doing in the last 10 years. I think this aspects of the tailing safety management, it's been raising an awareness lately. For many years, we've had a program that has reviewed the -- all of our tailings -- the processes that we have in Fresnillo. In 2016, we went through a full review of all the tailing dams. In 2018, we signed a contract with an independent advisor, specialist. We've done already Ciénega again and San Julián as well. And this year, we will continue with the tailing dams at the Fresnillo Districts. In the Fresnillo District, we have built our tailing dam on an upstream process. Ciénega, San Julián and Herradura are -- they all have been built on a downstream process. And as I mentioned furthermore to this new contract that we have with this independent consultant, we will engage another international firm so that we have one more audit to our tailing dams. Most say that the Mexican standards are very similar in terms of safety factors to the Canadian and the U.S. safety factors for tailing dams construction.

Now a bit of the highlights for 2018. We produced record silver production, 61.8 million ounces of silver including the Silverstream, this was 5.3% up to 2017. However, we had higher expectations for the year. And we couldn't reach them because lower grades at Fresnillo than expected -- lower grades than expected at Fresnillo and Saucito. We also talked to you about the problems we've had at San Julián with the initial -- in the first half of the year, initially with lack of water for the process. And only now, we didn't reach the initial target we'd have for the silver. Nonetheless we've produced more in terms of gold and despite the fact that at Herradura was hit twice during the year by some heavy storms and in 1 case a hurricane. I mean, they came out with good production numbers that was also the cause for further delays at the Dynamic Leaching Plant, but all in all, we were able to increase twice the guidance in terms of gold production during the year.

In terms of development of the projects, we commissioned the Pyrites plant at Saucito, that portion still to be constructed and we are advancing on the second leg of this project, which is the Fresnillo flotation plant of the old tailings and the current tailings at Fresnillo. And we also commissioned last year the second Dynamic Leaching Plant.

Exploration, as I mentioned, which is a big part in our strategy, we invested and we had mixed results in terms of research and resources that David Giles further will explain. I would like to mention the ample resources that we have, 2.2 billion ounces of silver and 39.1 million ounces of gold. And you may recall that Roberto Díaz, our previous COO, had the roles of operations but also on project development. That was being quite a heavy load -- workload, and we divided the 2 responsibilities. Now we have Roberto Díaz retired from the company, and we went in an international search and we hired Andre Sougarret, who's been developing his career in the Chilean mining industry. He is now in charge of only the operations. And we hired also an Assistant Vice President of project development that would make them more focused in each one of these big responsibilities.

In terms of financials, the gross profit and EBITDA, $780 million and $915 million, respectively, down 15.6% and 13.7%, respectively. Based or due mainly to higher stripping cost at Herradura, inflationary pressure and some other aspects that Mario Arreguín will give a detail on.

A strong balance sheet and at the end of the year, we have $560 million cash on hand, and our board declared a final dividend of $0.167 per share equivalent to approximately $133 million.

Now on operations, Fresnillo, we -- it's been a challenging year, after 2 years of improved results, as you can see in 2016 and 2017, the results -- we sit back on the results of Fresnillo, further complexities in the operation in terms of contractors' performance, in terms of maintenance issues with the equipment. But all in all, I would like to draw your attention to the large resources and reserves that we have in this mine, that gives us the confidence really to continue investing in the -- in this asset. As you know, we are -- we finalized the vertical conveyor that is giving us more flexibility. We are keeping on deepening the shaft, that would give us a possibility to access to the large resources we have on the San Carlos area. That's another task that we will continue on. We've in the last quarter of last year, we brought on the property, 1 more Spanish contractor that is performing quite well. I believe we are going to rationalize the different contractors that we have in Fresnillo. We reached 2,800 meters in average of development last year, and we are pointing our objectives for this year would be to reach by year-end more up to 3,500 meters per month.

You can see that based on all of the activities we've been doing. One more that I can mention is more flexibility with the union that we have in Fresnillo. One other aspect that we were suffering was the lack of people for the operations. They provided now more people for the operations. We are training them. One more aspect that I can mention is that we were not in the past working the Sundays there, just the people that were coming by over time. And now we have agreed with the union that they are coming on Sundays. So with all those measures in place, we are confident to put the guidance for 2019, as I mentioned, reversing the downward trend and keeping up on what we were doing in the previous 3 years.

As I would like to point or draw your attention to the all-in sustaining cost and the ample resources that we have in this mine. In Saucito, in the Jarillas Vein, we had some surprise in terms of the -- of lower grade than expected. We completed an infill drill program in the Jarillas Vein, with this we have more certainty of what to expect in this 2019 and in coming years. That was also a reason why we didn't reach our initial target for silver production on a consolidated basis. And here you have the guidance for the year in terms of silver production for Saucito as well. The development rates are similar to those in Fresnillo, 2,800 -- 2,700 meters per month, doing good in the last quarter of last year and also, we are trying to reach 3,400 to 3,500 meters per month by the end of 2019. We continue -- we're going to start and continue with the Jarillas shaft deepening. So we have better flexibility in the future with this infrastructure.

San Julián, despite the fact that we had a -- we suffered lack of water for the process in the first year of the -- in the first half of the year. Let me point out to our full year of operation and the cash cost and the all-in sustaining cost that we achieved in this operation, all in for the vein system of just north of $5 per ounce and on the [GM] Disseminated Ore Body, approximately $10 per ounce. I don't foresee any problems with the water supply this year in 2019. And we will continue with our good operations in this area. Also in this process, or for the process that initially delayed the water reservoir in San Julián, I can say that we successfully went through an indigenous consultation process in the area. This process -- and we engaged the communities with our key programs that we have for the overall -- for the company as a whole in terms of water, in terms of, for the communities, in terms of health as well, in terms of entrepreneurship for the communities in the area and in terms of education. This process even was reviewed by the -- under Secretary of Mines as it was the first one that we had done in the mining industry in Mexico.

In Ciénega, 140,000 ounces of gold equivalent, operations. We continued developing the west area of Taspana, we have energy now there. We continue growing the resources, and we are still considering the expansion point in time. Initially we wanted to grow the resource base and that's what we're doing. The first calculation we did was short to our standards in terms of this expansion. And we are rationalizing the investments. So we have better metrics for the expansion of this operation in the future. And for Herradura, as I mentioned, quite a remarkable effort to come up with this production in 2018, 474,000 ounces. Also a pick up on the silver production, a very good cash cost and all-in sustaining cost. And -- but in Herradura, we had some effects, or some of the effects, some of the effects that are affecting our financial results. We flagged these variables in the operation. You know that in 2017 to 2018, we increased substantially the reserve base and also the resources. Given that fact, we went and we had a new pit design. That new pit design made for a larger or an increase in the stripping ratio to 4.57 foots -- ratio 4.57 from 3.7 that we had previously. Of course also that made us go through a change of components. We were working on a -- on 2 components in 2017 and the first half of 2018, and given this new pit design and larger stripping ratio, we had to go to 1. Which means that while we used to be capitalizing in terms of cost, we were bringing all that cost into the production cost.

That as I mentioned, that was very good flagged and Mario will go into more details on the effect we -- it had in the financials. In the photograph you can see -- and there was another variable that we had, but this 1 was positive. We will see the heap leach pad, the larger 1 and you will see a section in the middle. Well we made that section in order to lower the haulage cost in order to deposit the new ore south of that leach pad. And while doing that we were able to expose the walls of that leaching pad. Of course, we were able to see that we have solutions with contents of gold. We were able to sample a large sample in all those wells. And we came with a positive effect of increasing our gold inventories in what we have in our pads.

For Noche Buena, it's an operation that we'll concentrate on lowering the cost. As you can see in the graph, we have achieved good results with this decrease in the cash cost. This is an operation that has limited reserves and resources, 3 plus years and so the focus will be on lowering the cost in this operation.

As for the development projects, as I mentioned, we finished or we completed the part of the pilot plan on the Saucito mine. Still to be developed, the other leg of this project, which is the flotation plant at Fresnillo. This flotation plant will make an iron concentrate with silver and gold contents, that we will bring into this facility and we will leach that concentrate in order to recover the silver and gold from the current Fresnillo operations as well as the old tailings in the Fresnillo area.

We expect, as we initially mentioned when we were starting to build this project, a 5% to 5.5% larger recoveries in silver, and approximately 14% to 15% higher recoveries in gold, to the current recoveries in the Fresnillo and Saucito operations. It's quite a strong project, you'll see the metrics there, along the quality of the operations of the assets that we have in Fresnillo.

Second Dynamic Leaching Plant was completed in Q4 last year. This will give us a possibility to process higher tonnage from the transitional area as well as some sulphide depth in Herradura, it will give us more flexibility as well in the current operation and you'll see the metric as well of this project.

And as for Juanicipio, we finalized the feasibility -- AMC finalized the feasibility study. We have discussed that with our JV partners and I believe, I can tell you that this process has been concluded. Given the fact that Fresnillo is going to build, continue building the mine and is going to build the flotation plant, we entered with our JV partner in discussing the EPCM agreement. We had hopes to finish it on time so that we could have a proof at all those meetings, we didn't. But any time we will conclude this discussion on the EPCM agreement. And we will present this project for board approval and -- so further news and very soon in this project or the go-ahead for this project.

And I would like to start mentioning some other developments or potential projects on the Fresnillo portfolio. One is Orisyvo and I would like to use it as an example of how we got to this stringent and orderly process. Orisyvo has a large resource base, as you can tell, 9.6 million ounces of gold. Out of that approximately 3.8 million to 4.2 million, we can recover efficiently with optimization of the potential CapEx in the area. All these years, we've been improving the projects, and lately, we achieved the metallurgical breakthrough, I would say, that gives us the possibility to increase the expected recoveries in this project from 65% to close to 78%, 80%. This change will give this project a stronger basis and it will be more feasible, and we are going to continue the process on this project.

Rodeo is another project in which we have resources. We concentrate ourselves in the land acquisition and the land access to the project. We are advancing with talks on the -- with the communities in the area. So we'd like to bring that to your attention because that may be another potential project that will start advancing in the near future. And Guanajuato, we've mentioned it before, we have 3 areas there. In the north, in the central and in the south part, all of them have been growing in resources. In the central part, we even have an infrastructure and a facility, a flotation plant that we can't use and we've been overhauling a bit. So it would be easier to put in operation in the near future. But still, good prospects of further prospers for exploration and David Giles can talk to us about this.

Rodeo. So there I would like to go back to Rodeo because this may be a project that can coincide with Noche Buena coming down. The facilities, the trucks, the infrastructure we have in Noche Buena, we could direct to this project, if everything keeps on advancing positively or even for Tajitos, which is nearby Noche Buena. So that's the kind of strategy that we're following and -- so that we can continue using the assets of Noche Buena in 1 of these projects.

And with this, I will pass the presentation to David Giles. David?

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David A. Giles, Fresnillo PLC - VP of Exploration [3]

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Okay. I'd like to just add a few words on that -- on Page 18, that Octavio was talking about. All 3 of those projects, we have very big land positioning. For example, the photo on there on the top right is Orisyvo. We have a great big land package around there and there are several similar targets like Orisyvo in the same district. Rodeo which is in Durango, we'd say, it's very unusual mineralization there. You look at the rock, it's a bridge and just weakly solidified. We've explored, that's a small area and it's got gold values and they leach out, just room at the mine leaching work on that 1 it's attractive. And of course, Guanajuato is a traditional old world class mining district and our company has a big land package there and these 3 areas we're exploring. I expect at least 2 of them could be new mines for Fresnillo.

So going on to the next page, Page 19, it's our growth pipeline. And as I've said before, Fresnillo has a very strong growth pipeline. We have a number of projects there that go to world-class mines. And the -- it looks the same of triangle, it's changing the properties that move up some weak accounts, some improve. On the right side, you can see where we spent our budget. Those numbers on red, last year we had $172 million and we spend 42% in the mining districts, the brownfields and the rest on -- in other areas. This year, our budget's $140 million. We are going to spend 60% on the top of the triangle at our mining district. That's particularly because Fresnillo, Saucito and San Julián, for me, are still in an early stage of exploration. We have many targets to explore there. On the triangle itself, what projects have moved up, Juanicipio is still a development project where the feasibility has been completed. The veins there at Juanicipio are still strong at depth, they're wide, they're economically mineralized and exploration has gone very well this year.

Coming further down the triangle, I'd say 1 that's moved up that's in drilling is San Juan, you can see that's in the center of the triangle. This is a project in the silver belt, located just south of Torreón, it's an area of veins, I'd say, we are well on the way to finding a new district there. It's silver and gold veins. It's on land owned by Fresnillo, not only we own the claims in the district, but we own a good part of the land, the surface land. What you don't you see on the triangle, some places don't turn out on the climb but they came up. And 1 that's off from the previous triangles, and basically we drilled it, it didn't turn out and we dropped the claims. New one's coming into the triangle on the bottom there in Chile, now we are doing more exploration in Chile. Over the last couple of years we've evaluated 120 districts in Chile, there's 10 we like and the top 2 we have negotiated these Condoriaco and Capricornio and we've started drilling actually just recently at Condoriaco.

Go to the next page, I will talk a bit about resources and -- resources of all the company and resource of the mines. So here you see our silver resources and we have 2.2 billion ounces of silver, that's a lot of silver. We came down but really it's not -- it didn't come down very much, they came down from 2.3 billion to 2.2 billion ounces. And you can see on the left side of the graph, what has happened in the year. I'll start out from the left side. The left side is where it's gone up there. You can see Juanicipio, Guanajuato and San Juan, we increased our resources. That's important because now I don't have it on the slide, but for example at San Juan, you can see this, we went up 12.9 million ounces, it's on the left there but now the total ounces at San Juan are 90 million ounces. So it's getting close to Fresnillo size mine and there is potential to double that.

Juanicipio are ounces equivalent of silver 237 million ounces, that increase there of 11.1 million ounces is important. And at Guanajuato, you can see the third bar, we increased resources 10.6 million ounces, the equivalent ounces in Guanajuato in the 3 areas now are at 168 million ounces. And it's still growing. Where we came down on our resources is the right side of the slide. We came down at San Julián, Ciénega, and Saucito. Really it's the same reason in all 3 of them, we came down because of the mining of course at the mines, in-fill drilling was partially negative on some of the veins. Also this year, we cut off our estimate early, wasn't a full 12-month year of exploration. The resources were estimated with 10 months and in the rest of the year, we continue to find more resources that are not included here. Also the cut-off grades were increased at the mines and that has an effect, that some of the resources don't reach the bar.

We used the same gold silver prices as last year in our estimate and we used lead and zinc at $0.10 per pound. And those notes are on the bottom of the slide. Looking at the gold resources on the right, our gold resources increased from 38 million ounces to 39.1 million ounces. You can see it under the title, it was an increase of 580,000 ounces of gold. And you can see the bars on the left are the reasons why it went up. The main reason was an increase at Herradura and the drilling we did on the deep deposits at Herradura increased 1.1 million ounces to resources. Across the -- on the exploration project, the next 1 -- each 1 went up, all the exploration projects grow it again Guanajuato, Juanicipio, San Juan, Tajitos. What brought down the gold resources, you can see on the right side of the bar and that's how mines, again depletion, higher cut offs and local in-fill drilling brought down the resources there. The end result was the resources went up.

On the next Slide 21, we consider our reserves and gold silver reserves went down 5% and 6%. 5% the silver and 6% the gold. Talking about silver, and this is at the mine, of course, our reserves are at the mines. They are included in the resources. In 2018, the silver mining depletion was only partially replaced by exploration. And you can see that our reserves of silver are now 475.9 million ounces. That's 25 million ounces less and we've produced about 60 million ounces in the year. The main reason was because of the -- on silver at San Julián, that's because the cut-off grade on the disseminated deposit was increased. We had some in-fill drilling on the veins, on 1 of the veins that we had to drop those reserves.

Looking at the gold reserves, our gold reserves are 11 million ounces, they came down 701,000 ounces. And as you can see on the slide, that's mainly because of Herradura and Noche Buena. At Noche Buena, it's in its last few years of life. So we are not exploring there, so that came down because of depletion. And Herradura, we did find more ore, we converted more ore to reserves there, but the reserves came down because the cut-off of the leaching plant was increased slightly, so that affected the project. Still very strong reserve position in our company in silver and gold reserves. We've got a large resource base, I'm confident that we can convert resources to reserves.

And on my last slide, it's just some highlights of what's going on. Our main asset of exploration is in Mexico. We are comfortable in Mexico, we like Mexico, we know the geology, we know how to operate, we know what's coming. But we're also doing more work in Chile and more work in Peru.

So looking at Mexico first, it starts off at the top. San Julián because the reserves came down, we've got a concentrated effort to exploring the San Julián district. It's technically well oriented. We have done -- we have a huge claim block there. We have done regional geochem, detailed geochem, we flew the area with an airborne Versatem survey and that there's a number of coinciding targets that have turned up. Things have trended similar to the mine area and we're drilling them right now.

With this, the second bullet Fresnillo, we drilled them, yes we drilled them up, Herradura, Ciénega and Fresnillo as well as these other projects that I mentioned at the beginning and where it's important to -- at the same time as we're exploring to acquire the surface land and that's what we're trying to get more surface land at Candameña and we are getting more surface land at Rodeo. The company has a large claim block, it's 1.8 million hectares. That number keeps coming up, it's not the same number. We're dropping claims and acquiring new claims and the result is we're maintaining that pace.

And the last point to me is very exciting. It looks very quite narrow data for me in the Fresnillo and Guanajuato districts, we're doing very careful mapping. We know them very well. And we found a number of new big targets to drill out that I'm surprised it took us so long to find them, but it's going to be very exciting to drill them.

In Peru, our favorite project that Fresnillo has it's in the Andes of central Peru at Santo Domingo and we control this district. It's a big gold system. For me it's similar to the Guanajuato district in Mexico. Peru is always a challenge to get the projects go slower in Peru than in Mexico. But now we've -- there's 2 communities, one's called Antabama and their neighbors, and we have good relations and that community has given us permission to explore there and we are going through the indigenous peoples. They have to -- consulting them that's that we are doing there right now. It's the same people that were in the 2 villages that have given us already the permits to go. The other odd thing about Santo Domingo, it's up at about 4,000 meters elevation and there's disseminated mineral around the veins as well.

Pilarica, is in southern, it's in the -- yes the lines there in southern. We've been drilling, we've upgraded the resource at the open pittable area in the mantos and veins, and where -- it's still not big enough for Fresnillo. It's about half of the size of what we are looking for and we are evaluating other properties in the district.

Supaypacha is in northern Peru in the Andes, and this is a virgin area where we found the porphyry with gold-copper values in it and we have -- we set up a community relations program before even drilling it because we like it very much, and we're in the process of trying to buy the surface land there before drilling it. We have 650,000 hectares in Peru and we're constantly seeking new area and dropping the ones we don't like. We have a good -- we are well established in Peru. The people know us there.

In Chile, we prospected the coast belts and have come up with few of these areas that we like. We've also staked ground around Copiapo and Chillan, which is south of Santiago. And as I said, the property (inaudible) district with good access, it's near La Serena and Condoriaco (inaudible). I've actually -- I have seen the core, it looks good. You can see the silver in the core. So all in all, Fresnillo is very positive on explorations. We have got good targets to follow up.

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Octavio M. Alvídrez, Fresnillo PLC - CEO [4]

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And with that, we will go to the financial review with Mario Arreguín.

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Mario Arreguín, Fresnillo PLC - CFO [5]

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Thank you, Octavio. It's always a pleasure to be here and to have the opportunity to share our financial results with you. On Page 24, you can see the income statement for 2018 and we compare those numbers with 2017. And as you can also see highlighted in gold, all of our profit lines unfortunately went down. Gross profit went down almost 16%, operating profit almost 29%, net profit almost 38% and EBITDA almost 14%.

So what I would like to do is to take you through the main highlights, starting with gross profit. As you can see in this slide. I am -- what I would like to do is to answer 3 basic questions regarding gross profit. First, why didn't our revenues increase with the volume that we saw and was reported to you just a few minutes ago increasing? Second question, why did our adjusted production cost increase that much, 24%? And lastly, what were the main drivers behind the fall in the gross profit?

So to answer those 3 questions, let's first move to Slide 25. To answer the question, why didn't our revenues increase in the year? As you can see in terms of volume, that had a very positive effect. We produced more silver, more gold, I mean more silver, more zinc and more lead, they were all positive and they had an impact of almost $108.3 million positive. However, the decline in prices, especially in the case of silver had a negative effect, which basically erased all the positive effect. And that's why we ended pretty much in line with the previous year.

Now to answer, what was behind the increase in our production cost? For that I would like to take you directly to Slide 29. And as you can see here, clearly, the most important factor, and by the way, you are already acquainted with this kind of graphs. The bar on the far right shows the increase, the total increase in the production cost of $183 million. Then on the left side, you can see all the different factors that had an impact on our production cost. Starting with the higher stripping ratio at Herradura, which Octavio spoke about during his presentation. There, we had a 2.83, let's say, index compared to 1.74 stripping ratio in 2017. That was an increase of 63%. We went from 1.74 in 2017 stripping ratio to 2.83. And this is before we decided to change from 2 to 1 phases at the Herradura mine. And we will talk about those because we have to see them together. So that was the main reason why you saw an increase in our adjusted production cost. And you know when we reported the results for the first half of the year, this was a very important factor too. And we were hoping that this would be picked up by analysts and would be able to see that this would continue to happen in the second half of the year. We also announced that we would be changing from 2 to 1 phase at Herradura, and you can see on bar 5, the impact of that, which is almost $22 million. So instead of going from 1.74 to 2.83, we went all the way to 3.35, that was the total stripping ratio. So again, 1.74 to 2.83, that was before we considered the impact of the change from 2 to 1 phase and from 2.83 to 3.35, that was specifically the impact for changing from 2 phases to 1 phase. I hope that's clear.

So in total, you have to add Column 1 and Column 5, which is more than $100 million in terms of the impact of the higher stripping ratio in relation to our production costs.

Another important factor was the associated cost with the higher volume of mineral processed at San Julián. As you know, San Julián at the -- effective state of San Julián came into operation late in 2017. So 2018 was the first full year of operations for San Julián. And that's why you see an associated higher cost for that.

The third factor was the lower volume of ore processed from development works at Saucito. In 2017, an important part of the volume that was processed at Saucito came from development works. So that was capitalized and considered to be an investment. So it had no production cost. That did not happen in 2018, where most of the volume came directly from the mine and that's why you see that effect of $31 million increase in our production cost.

Cost inflation was not that important; however, it was a factor. Cost inflation was 2.57% for us considering the basket of consumables that we have. And that had a negative impact of $26.4 million.

And we already spoke about the Bar #5. On the positive side, if you want to call it that way, we had lower volume of ore processed at Herradura, at the heap leach. So that less volume implied also less cost of $19.6 million. And that's how we get to the total figure there. So I hope that clearly explains what happened.

Now more importantly, though, what I will like to spend a little bit of time is explaining what were the main drivers behind the fall in the gross profit for the year.

As you can see, again, that's one of the most important factors on the negative side were the lower prices. The lower prices had an impact of almost $98 million out of the $144 million decrease in gross profit. So definitely that was a very important factor. We already mentioned the higher stripping at Herradura. And we already mentioned the lower volume processed at Herradura coming -- going into the heap leach. Those also had a very important negative effect.

Higher depreciation, we saw mainly higher depreciation at 2 mining units, at the San Julián Phase 2 which, again, had its first full year of operation, so that increased depreciation. And also Saucito, where we had the pyrites plant coming into operations in 2018 and we also had development work that was capitalized amortizing in 2018. So Saucito and San Julián by far were the main drivers behind the increase in the higher depreciation.

We already spoke about the lower volume of ore processed from development at Saucito when we described the production cost, we also talked about cost inflation. So they were the most important negative factors in terms of consolidated gross profit.

On the plus side, on the positive side, you can see that the reassessment of gold inventories at Herradura had a very important impact during the year of $94.4 million. Remember, we now have incorporated the 98,000 ounces to the inventories that were not there previously. So that's why you see this very important positive effect.

We also saw higher ore grade and speed of recovery at Herradura, which we estimate had a $68 million positive effect and, of course, we had higher production at San Julián. Once again because we had this first full year of operations compared to a much smaller period in 2017. And we also saw higher recovery ratio at Saucito. So what I would like to do now is to see the bars that somehow set off from one another.

Let's look at, for example, Herradura. In the case of Herradura, you have 2 very positive bars which are Bar #1 and #2. And if you sum those 2 bars, it's $163 million. And on the negative side, you have 3 negative bars for Herradura, Bar #12, Bar #11, and Bar #7, which I have already described. If you add those up, those add up to $169 million. So to be fair, in the case of Herradura, the positive set of things more or less offset the negative things.

When I said that we had an increase in depreciation and had a negative effect of $44 million, I said that it was mainly at Saucito and San Julián. But if you see on the positive side, San Julián obviously produced more, and also Saucito had a better recovery precisely because of the pyrites plant which came into operation. So the 2 positive bars, 3 and 4, more than offset the negative Bar #10.

So what's left? One can argue that the real reason behind the fall in gross profit was basically then lower metal prices and cost inflation, which were not offset. And also the volume that was processed at Saucito from development works that we did not have in 2018, when you look at it from this perspective. And I hope that was helpful.

Now let me just go back to the income statement, very, very briefly. Because so far, what we have explained up to now, is the gross profit line. If we move down to the operating profit, you will see that there were 2 main reasons for the fall in addition to the ones that I explained previously. The exploration expense line, which increased by almost $32 million, and let me tell you by the way, this was planned for, this was included in our budget. So if you were to look at our budget, we would be -- in line with our budget. However, we increased compared to last year. And we see that more as an investment, more than an expense.

In other income, $13.5 million, and we have mentioned this before in 2016, we sold some mining rights of properties that were not specifically important to the company and this year we did not sell any of those. So that's why you don't see that positive effect in 2018.

Then moving down all the way down to the net profit, net profit for the period where we see a decrease of $210 million, despite all the reasons that I just mentioned to you. We had one important negative factor, which was the Silverstream revaluation. As you can see there, that had a negative effect of almost $93 million. And the reason for that was that in 2017, we had a positive effect of $70 million, remember when we reported that back then, it was due basically to the increase in resources that were defined at Sabinas Mine. Remember that the Sabinas Mine is owned by Penoles and this is where their Silverstream comes from. So when you value the asset and consider that additional volume in the model, you get an increase in value of $70.3 million. This year what we saw were basically 2 negative factors, which impacted the modeling: one was the lower silver prices; and the other one was the higher rate at which we discount the growth because given the recent increases in interest rates, that also impacted an increase in the discount rate at which we discount the future cash flows expected from the Silverstream. So that's why you see a negative spread this year and a positive last year, but when you put them together, the total effect is $93 million, which obviously hit the net income level.

All the other slides very quickly. This is just to show you the participation by mine. As you can see we now are much more diversified in terms of revenue coming from each one of our mines. And also by metal, as you can see here, half of our revenues are given by gold, 36% from silver and what you can see as the important increases in the base metal size, especially in the case of zinc. But both, together, they represent 14%; a few years ago, it wasn't even 6%. So we see an increase in that as we go deeper into our mines.

I already spoke about inflation. You can see the details in Slide #27. This is just for you to analyze and to have for your information. Page 28 is a breakdown of our total production cost, considering contractors, and we've also broken down contractors. Contractors represent, as a whole, 31% as you can see on the slide. So contractors is not only labor, they bring in their own equipment, their own maintenance, their own operating materials. So it's important to classify them correctly. So this is just for your information and knowledge.

We have already gone through this line, okay, these are details regarding income statement on Page 31. So you can see in the case of exploration, clearly, how much have we invested in the operating unit, how much into projects, how much into prospects and how much specifically into regional prospecting and how much actually were considered to be just mining rights. So I hope this gives you a clear idea of how that mining is distributed among projects and among our operating units.

Page 32, the cash flow. Obviously, our operating cash flow decreased by 13% for all the reasons that I mentioned when I explained the income statement. But, furthermore, you can see that we had an increase in working capital of $128 million. And I think I should make an important comment here, those $127 million, $90 million or almost $90 million came from an increase in VAT that we are still pending to be recovered from the government. Remember in the case of Herradura, and this is important that you know, when we sell the gold contents in Gatorade to Met-Mex that carries 0 VAT, 0. But when we pay our suppliers and our service providers at Herradura, we have to pay 16% VAT. So this Herradura, per se, is a company that will always have a balance -- a favorable balance that is due to be recovered by the -- from the government. And it's becoming a bit more tougher, if you will, to recuperate those money spent, the VAT. So this is something that needs to be considered because probably from now on, the balance that we will have in VAT to be recovered is now going to be stable but at a higher level.

Moving down the income tax and profit sharing paid for $214 million, remember that this is cash flow. So we're talking about provisional payments that were made during 2018, plus the -- also the income tax that we actually paid for 2017, in -- which was in excess of the provisional payments that we made in 2017, that was paid in March. We also have in there the PTU that was paid in 2018, but corresponding to 2017, we paid that in May, but that corresponds to the previous year. And we also paid the mining rights for 2017 in March 2018. So that's how you make up the $214 million that you see there in that line.

I think worth mentioning is also the investment that we made in CapEx. And to give you an idea of how that was invested, you have this on Slide 33. So you can appreciate how much of that was invested in new projects and how much of that was actually sustaining CapEx in our operating mines.

So at the end of the year, we closed with $561 million in cash. We were net free cash flow negative, approximately $30 million. And again, most of that -- the reason for that was that we were not able to recuperate our VAT as we should have been.

Lastly, on Page 34, you can see our balance sheet continues to be very sound, very strong. There's really not any major comment here.

Here on Page 35, 36 and 37, 38, you can see our cost per tonne for each one of the mines. You also saw that in the -- in each one of the operating mine slides, previously, but I thought it would be nice to see them all together as one. We have a very detailed explanation of the variations from one year to another for all of those variables, for the cost per tonne, cash cost and all-in sustaining costs in our -- in the papers that we have distributed and on the -- in the prelims that we just published this morning. But let me just give you an example. And you can look at the rest of the mines when you read the reports. For example, Saucito, up 26% in terms of cost per tonne. The main reason for that was, again, the fact that in 2017, we had a volume of minerals that came from the mining works that was capitalized. So that -- we processed that but it did not have any production cost itself. That was in 2017, again in 2018, most of that mineral came from the mines so it had its own cost.

That's the main reason for the 26%. But when you look at the cash cost for the same mine for Saucito, you see a 35.6% reduction. Why? Mainly because of the byproducts. We've had an important increase in gold, zinc, and lead, which are credited back to costs and that's the reason why, mainly -- other reasons but mainly why you see a reduction in cash cost. And if you look at the all-in sustaining cost for Saucito, again, a very important increase of 21.9% why? Because we have invested a lot in the pyrites plant and you have to take everything that you invest in CapEx into consideration when computing the all-in sustaining costs. So you had that included for 2018 together with more development works, which were capitalized, but for purposes of the all-in sustaining cost that goes into the formula, and thus, you get that increase of 22%.

And I could go explaining for each one of the mines, but I think that would take too much time. And you can always read it in the report that we just issued.

And with that, I will pass it on back to Octavio.

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Octavio M. Alvídrez, Fresnillo PLC - CEO [6]

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Thank you, Mario. So wrapping up. Here is the traditional chart on how we are forecasting to bring onstream the development construction of the different projects. Fresnillo 9,000, what I mentioned, I mean, we are deepening the shaft. We do have already a conveyor belt, we are investing in the tunneling machine that will give us expected 300 meters per month that will be on site in May, June, and then operational in September of this year to develop the haulage level [795] west and will give us the possibility also to prepare the upper blocks, 4 blocks to the west. So -- and with the other actions that I mentioned, we are confident that we will be able to achieve those 9,000 tonnes per day by mid-2020.

Juanicipio, as I mentioned, expect news any time now of the approval of the project. We have selected the equipment. We have talked to different construction contractors, everything is lined up in order to, as soon as we get the approval and the agreement in place so that we have everything to start the construction of Juanicipio.

Ciénega, we continue increasing our resources in the west area. We continue investing in infrastructure. We are rationalizing the CapEx so that we can make this a strong project.

Orisyvo, as I mentioned, our very good advance or increase in recoveries and that will give it the possibility of a stronger project in order to be able to mine efficiently the -- that resource.

And every year, we go in the case of Herradura, once we explore for the year, we do the exercise of the possibility of expanding the pit. If it's feasible, as we mentioned last year, we will do it, otherwise we will continue at the same rate, at the same pace.

This is the expected attributable production profile of each one of the metals, mainly silver and gold. As you can see, we will have, in 2019, a kind of a flat production, 2020 picking up, with some of the projects that we mentioned. And, importantly, in 2021, once Juanicipio is in operation further quality growth.

In terms of gold, somehow, a flattish production. In gold, let's remember the first 5 years, after 2008, we grew and we have to increase the initial objective we have for this metal. And you will see the byproducts, lead and zinc, continue increasing due to more base metals of depth in Fresnillo, Saucito and later on, not shown here, in Juanicipio.

CapEx, this is a new CapEx profile for the following years, 2019, $710 million, increasing in 2020. And we fall short in 2018 because we have considered, initially, some of that CapEx going to -- or be deployed or initially deployed at Juanicipio. 2020 is picking up to $730 million. You have a number there on the left side on each one of these sustaining figures as well as the projects and then decreasing to 2021 according to the pipeline that we mentioned.

Just to finalize. I mean, our main strategy, as I mentioned, continue exploring. We have very good prospects, we will continue for production growth after 2020 on. Quality growth, I should mention, more on the Fresnillo District. We have to prioritize safety, as I mentioned. As a milestone of this year. Continue this year, I mean, we're focusing also on the efficiencies at each one of the operations, consolidating of growth and advancing further our growth pipeline.

In the graph on the bottom, you will see in terms of equivalent silver ounces. We have had a couple of pauses in the growth in 2011, '13, and now in 2018 '19, and then after, we have very good possibilities of continue this quality growth in the company.

And with that, I would like to open it up for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Mario Arreguín, Fresnillo PLC - CFO [2]

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Here -- operator, here we have one question before. Please, could you hold that one on the telephone? Jason, please.

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Jason Robert Fairclough, BofA Merrill Lynch, Research Division - Head of the Developed & Emerging EMEA Metals and Mining Equity Research [3]

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Just -- Jason Fairclough, Bank of America Merrill Lynch. Just a question here on Slide 41 and 43, could you just talk to us a little bit about the projects and where they are in terms of being board approved? And having capital allocated to them? So if I look at the plans here in these longer-dated projects and your CapEx numbers, what's actually included? And what's actually board approved today?

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Octavio M. Alvídrez, Fresnillo PLC - CEO [4]

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Right. Pyrites plant, the second leg, the flotation plant in Fresnillo, that includes a new lab facility for the whole Fresnillo district as well, that is included. Fresnillo going to 9,000 as well. We expect to finish that in the first quarter of 2020. Juanicipio is in the number there for 2019 and also it will continue into 2020. We said we will finish this project second half 2020. So by then, it should be completely deployed. As I mentioned, we are still waiting for the board approval. Ciénega 5,000, it is a number included in 2020, it is not approved yet. And Orisyvo, we expect to put probably for board approval in October. The capital will be deployed in 2020 and '21. And then bring that in operation in 2022, but it's not yet board approval. And Centauro pit expansion is not considered, we will do this exercise on a yearly basis.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [5]

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It's James Bell, RBC Capital Markets. Just a quick question on Mexico. Obviously we have seen lots of headlines since Andrés has come into power, comments from Senators around potential changes to mining regulation. I just wondered if you can give us a general comment on how the working environment is? How you want to go -- how your dialogue has been with the new government around both existing operations and potential future partnering, if you might?

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Octavio M. Alvídrez, Fresnillo PLC - CEO [6]

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Sure. Well, Andrés stated that he was not going to raise taxes for the first 3 years of his administration. That's one good thing.

Then, on the mining industry, I'm glad to report that we have had a lot of interaction with the Undersecretary of Mines even before he was posted to this position. He has been visiting mines in Mexico, he has been visiting mines in Canada. In the case of Fresnillo, I mean, he has been in the Fresnillo District already, he went the full day and a half for -- to San Julián and got in very closely telling the whole process of indigenous consultation. As we have been the first one in the mining industry in Mexico. So we believe we are well positioned going through this process last year. So they have a lot of interest in the mining industry. He has stated also that is one of the priorities in terms of the industry that he we would like to have support. Other than that, I mean, that's what we have, the -- I believe they will go and define better the indigenous consultation process, which is good. You may recall that when we had to go through this process for the San Julián water reservoirs, one of the areas why we delayed this project was because a lack of definition in that process. We had to go to the state government to federal to different entities and in the end, we got everybody together and a stance on this process. So I think it will be good. So for the time being, I think, it's been like that, yes. We have -- also have good contact with the -- our President of the Mining Commission at the Senate level. She is very interested as well in the project, of course. So a lot of interaction with them and the mining industry and through the Mining Chamber -- Mexican Mining Chamber as well.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [7]

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And just one more, if I may. In your opening statement on the results, you talked about potential headwinds this year being inflation. Obviously, last year, fairly benign from what Mario was saying. I just wondered if you could talk about what your were expectations might be for this year?

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Mario Arreguín, Fresnillo PLC - CFO [8]

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Yes, for next year, we are considering a cost inflation based again on our consumables between 3% to 5%. So it's, again, not a major factor. It is a factor. But not the most important factor. And again, next year you can expect a higher stripping ratio effect, because the fact that we changed from 2 to 1 phases, was -- for 2018 was only on the second half. So next year you will see full year effect of that. So, again, I would ask you to take that into consideration when you do your modeling and Gaby would be more than happy to guide you with that going forward.

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Gabriela Mayor, Fresnillo PLC - Head of IR [9]

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We're expecting to -- further details on that is to go from 4.57 to 4.65 for next year for Herradura, the stripping ratio.

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Mario Arreguín, Fresnillo PLC - CFO [10]

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Just the 2 -- that's the total stripping ratio. The 4.5 being 2018, but again, part of that was capitalized in the first half of the year. So the total is -- that went to cost, I remember I said it was 3.50 something, right? So you will see it probably going from 3.50 something to 4.66 year-on-year basis. That goes directly to cost.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [11]

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Dan Major from UBS. A few follow-up questions, firstly just directly on to the Herradura stripping question. Is it fair to assume that we see a similar run rate in terms of what goes through P&L on costs as you achieved in the second half of the year, adjusted for that slightly higher stripping ratio? So if we assume the run rate in the second half on a cost per tonne of ore processed basis, is fairly comparable, is that -- that would be correct? Okay.

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Mario Arreguín, Fresnillo PLC - CFO [12]

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Yes.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [13]

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And just second one, I know you don't typically provide guidance on CapEx specifically by operation but obviously, the reclassification of stripping would mean that CapEx comes down. Can you give us any indication of what the CapEx number should be for Herradura on a sort of 2019 basis, so we make sure we are adjusting the CapEx versus the P&L cost.

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Mario Arreguín, Fresnillo PLC - CFO [14]

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Well, I don't have that detail right now, but you're right. Obviously, if we take more of the stripping to cost, it will be less capitalized and, thus, going into CapEx. And that's already taking into consideration for 2019 in this graph, and that's one of the reasons why you see a sustaining CapEx coming going down. I'll be happy to give you the specific figure for Herradura on a standalone basis.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [15]

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Okay. Great. And the next one is just follow-up on the cadence, just to be clear that $540 million of CapEx in 2021, that doesn't include the Herradura life extension project? Or it does?

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Mario Arreguín, Fresnillo PLC - CFO [16]

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It doesn't.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [17]

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It doesn't, okay. Great. And then, just a final one. Again, slightly accounting related. Can you give us a group-level guidance for depreciation for the full year? There's been a few moving parts for 2019. What you would expect for the depreciation level for the full year?

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Mario Arreguín, Fresnillo PLC - CFO [18]

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Yes, we expect depreciation to go higher again next year because you will see the full effect -- the full year effect of new operations that came in 2017 only for a few months in -- sorry in 2018 for a few months and that will be fully operating throughout the year in 2018. We would be happy to provide you with that detail also.

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Grant Sporre, Macquarie Research - Head of European Metals and Mining Research [19]

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It's Grant Sporre from Macquarie. I've just got sort of 2 follow-up questions, just -- well, actually 3, the first one is on Juanicipio. Just what is the sticking point with Mag Silver that the negotiations seem to be taking quite a long time. So just what is the real sticking point?

The second question then, on Fresnillo and Saucito you -- obviously, your head grades are well below your reserve grades. And that to my mind seems to speak to greater-than-expected dilution. Is that just a fact going forward that you're mining [center] veins and you are going to have more dilution? And then, lastly, just roughly, can you give us some guidance on how long Noche Buena has to go? How many years should we assume in terms of life of mine?

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Mario Arreguín, Fresnillo PLC - CFO [20]

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Well, the first one on Juanicipio and that can we please -- it's different when you have a JV partner, of course, than whenever you develop a project on your own. And we tried to go to this process at a faster pace when we suggested or proposed to go not with a full feasibility study. Unfortunately, we didn't do. I mean, we advised this back in -- a year half ago, and then after, we embarked on this feasible study. I mean, that took just longer than expected. Once we had it in place, I mean, we discuss it with our partners, the discussion went well. They understand mining, they've gone through some other development project so that, that process did not have any issues. But it was just the process of discussion going back to the consultant, review the feasibility and then discuss it again. And then when we thought everything was going to be ready, I mean, we said, well, we are going to be in charge of the construction, we need to put an agreement in place and that's what we are just finalizing. So it just takes longer.

In terms of Fresnillo and Saucito, yes, you're right. We are a part of that dilution. We want to address as well because we have not as wide veins as before, and also we've had higher dilution than expected. So it has affected the grade that we have on the reserve base. But also, and it came as a surprise last year, in Jarillas, which represents 70% of the input in the case of Saucito, we had in the modern and geological, more higher grade. When we were there, we -- it did not behave as the model. So that's why we said, well we need more because infill drilling because the veins are changing a bit. That's what we did and we have a higher certainty now, but not as wide veins so we have to control now dilution.

Noche Buena, 3 years, 2.5 years to 3 years, and then after we will continue to have some production out of the heap leach pads and we continue sterilizing those pads.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [21]

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Alan Spence from Jefferies. Again, on Juanicipio, as I think about, kind of, 2020 versus 2019 production levels, can you share what your expected contribution from that mine is in the production profile you showed going forward, either on 100 or a triple (inaudible) basis?

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Mario Arreguín, Fresnillo PLC - CFO [22]

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Yes, just a bit, as I mentioned, we are expecting -- everything is lined up to -- just waiting for the board approval. Finalizing the construction second half 2020. So we are forecasting a bit of a production in Q4 of 2020, a full year but ramping up in 2021.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [23]

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Okay, so low single digit, [9 ounces at most] type thing?

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Mario Arreguín, Fresnillo PLC - CFO [24]

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Same thing, yes.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [25]

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Follow-up, when I look at Slide 42 and 43, kind of, a similar story of over the last 2 or 3 years with production ramp-up being pushed out, CapEx being pushed out. Quite a lot of that seems to do with contractor performance, et cetera. Two questions, what gives you the confidence that these numbers are not going to slip further?

And, secondly, when I look at your cost inflation, it looks like it was a 30% increase in contractor costs, I still struggle to understand why you don't take more of this in house if you've struggled for 3 years to get the performance out of the contractors, that's impacted the group performance?

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Octavio M. Alvídrez, Fresnillo PLC - CEO [26]

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Sure. Well, the production growth -- the real production growth has to do with Juanicipio. In the previous year, we had Juanicipio very much in earlier days. And with Juanicipio we have no doubt reached our 65 million ounces that's for 2018. It's been delayed as we have been discussing it. And so now I can tell you that this production profile is quite reachable. As we are expecting that approval very soon.

The other increases or lift that you -- as you mentioned, in production have to do with the Fresnillo operation, I would say, mainly. In the past, Saucito has been compensating any lack of production out of Fresnillo. So in the end, Fresnillo has been the case, and a little bit 6 to 8 months at San Julián.

In the case of Fresnillo, yes, you may think that we've been struggling with the contractor performance for quite some time and that's true. We have, as I mentioned, I mean, last time, we reported that we didn't have enough people, mining personnel in the area. It's been a challenge to attract new generations to the mining -- to do mining. Otherwise we have done it. Fresnillo is a town with mining tradition, and even there, you don't have -- we haven't been able to attract younger generations.

And then, the contractors, we've been using all of the major contractors across our operations. Whenever we have a good performance of one of those contractors in some of the mines, like in Ciénega, we try them in Fresnillo and then they kind of lose control of the operations and they don't achieve the rate they were doing in Ciénega. So this time we relied on some other contractors. One that is giving us good results is in a Spanish contractor that entered into Fresnillo in Q4 last year. Instead of adding more contractor, we are going to concentrate on making the most out of the 4 large contractors in Fresnillo and our own people.

Q4 was better in terms of development, with our own people we believe we can achieve 1,000 meters per month and the other contractors between 700 meters to 900 meters per -- each contractor and probably rationalize the number and get rid of the smaller ones. Yes, there is no more that I can tell you.

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Mario Arreguín, Fresnillo PLC - CFO [27]

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And just to be precise, when you look at the consolidated cost inflation, the segmentation, you can see that contractors increased by only 2.9%. The weight is quite high, it's almost 31%. And remember, this is made up, contractors is made up of several concepts, just to clarify.

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Jason Robert Fairclough, BofA Merrill Lynch, Research Division - Head of the Developed & Emerging EMEA Metals and Mining Equity Research [28]

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Just to follow-up on Juanicipio and Mag, does Mag actually bring anything to the table here? Or is it just a cost having a joint venture partner?

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Octavio M. Alvídrez, Fresnillo PLC - CEO [29]

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I think we've gone through a quite formal process with Mag. Of course, they were the original owners of this concession. We -- they were exploring for some years in the area and then we approached them and through a good exploration option, we earned in our share. I think it's -- at a point in time, it was not a good relationship, as you know, in the past. And then now, it's a good relationship, I would say. I think it's a good JV and we look forward to developing the project on this basis.

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Jason Robert Fairclough, BofA Merrill Lynch, Research Division - Head of the Developed & Emerging EMEA Metals and Mining Equity Research [30]

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Can you just remind me though if it's ore that then gets sold to the existing infrastructure? Or are you building your own concentrator here?

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Octavio M. Alvídrez, Fresnillo PLC - CEO [31]

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Yes, initially we thought that we could have, probably space to build that facility within the Saucito area. But as we have started building the pyrites plant there, there was no more area left. So -- and we thought -- and then, with further exploring, further growing the resources on Juanicipio, and we said, well, Juanicipio looks like it's going to behave like Saucito, in which we initiated a one facility that probably we have a grow in that area and need to grow the facilities, just went for a different place and that's at a standalone operation, yes.

Operator, yes. Operator, is there any question online?

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Operator [32]

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There are no phone questions.

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Octavio M. Alvídrez, Fresnillo PLC - CEO [33]

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Thank you.

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David A. Giles, Fresnillo PLC - VP of Exploration [34]

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Thank you very much. Thank you all.