Fresnillo profit short of forecasts, expects costs to rise

By Arathy S Nair

(Reuters) - Fresnillo (FRES.L) missed annual profit expectations and predicted higher costs ahead on Tuesday, sending shares in the precious metals miner down more than 5 percent.

The company, which mines gold and silver in Mexico, said it expects cost inflation in 2018 to be about 7 percent, compared with the 6.4 percent it faced in 2017.

"We think it (cost inflation) is totally manageable," chief financial officer Mario Arreguín said, adding that Fresnillo was looking at ways to be more cost efficient.

The company's earnings before interest, tax, depreciation, and amortisation rose 2.7 percent to $1.06 billion in the year ended Dec. 31, but were slightly below the $1.09 billion forecast by Thomson Reuters I/B/E/S.

Cost of sales also rose 14.1 percent to $1.17 billion in the full year, primarily due to higher cost of production.

Revenue climbed 9.9 percent to $2 billion, helped by record silver production, higher zinc volumes and base metal prices.

Silver production rose 16.6 percent to 58.7 million ounces as the first phase of San Julian silver and gold mine in Mexico operated at full capacity for the first full year.

Fresnillo said it expects 2018 silver production to rise to a range of 67 million to 70 million ounces, with San Julian's second phase making a "meaningful contribution" as it began operating at full capacity.

Gold production is expected to be in the range of 870,000 ounces to 900,000 ounces this year, compared with the 911,132 ounces it produced in 2017.

The company said it expects to spend about $755 million in 2018, higher than $604.8 million it spent last year.

Fresnillo, which also raised its final dividend for 2017 by 38.6 percent to 29.8 cents per share, saw its shares fall by 4.1 percent to 1276.5 pence per share at 0900 GMT.

(Reporting by Arathy S Nair in Bengaluru; Editing by Subhranshu Sahu/Amrutha Gayathri/Alexander Smith)