2014
ANNUAL REPORT
AS GREAT AS
OUR
COMPANY PROFILE
Peñoles, founded in 1887, is a mining group with integrat-ed operations in smelting and refining non-ferrous metals and producing chemicals. Peñoles is the world’s top pro-ducer of refined silver and the leader in metallic bismuth in the Americas; the leading Latin American producer of refined gold and lead, and among the main refined zinc and sodium sulfate producers worldwide.
Peñoles’ shares have traded on the Mexican Stock Ex-change since 1968 under the ticker PE&OLES. MISSION AND VISION
The Company’s mission is to add value to non-renewable natural resources in a sustainable manner.
The Company’s vision is to be the most recognized Mexi-can company in its sector worldwide, for its global focus, the quality of its processes, the excellence of its people and the ethical leading of its business.
Peñoles seeks to:
•
Provide our shareholders with the best long-term invest-ment option, with growth and profitability.•
Form strategic partnerships with our clients, offering in-tegral solutions and inspiring trust to conduct business over the long term.•
Become a strategic link in the value chain, establishing long-term and mutually beneficial relations with suppliers.•
Create a workplace that engenders pride and dignity, be-cause it offers opportunities for development, respect and recognition to our employees, in a safe environment and teamwork.•
Be a socially responsible company, respectful of the natu-ral environment while promoting self-development in the communities where we operate.Our conduct is guided by the values of Confidence, Responsibility, Integrity and Loyalty (CRIL).
PEOPLE, IN THEIR ABILITY TO INNOVATE
AND GIVE THE BEST OF THEMSELVES,
ESPECIALLY IN THE FACE OF ADVERSITY.
Peñoles is part of Grupo BAL, a privately held diversified group of independent Mexican companies that includes:
Grupo Palacio de Hierro
(department stores);
Grupo Nacional Provincial (insurance);
Profuturo GNP (individual retirement funds);
Valores Mexicanos – Casa de Bolsa
(financial services);
Crédito Afianzador (bonding);
Instituto Tecnológico Autónomo de México (education); and agribusinesses.
Business Model
Financial Highlights
Letter to Shareholders
Letter to the Board of Directors
Review of Operations
Exploration
Mining
Metals
Chemicals
Energy and Technology
Our People
Corporate Governance
Management
Board of Directors
Management Discussion and Analysis
Report of the Audit and Corporate Governance Committee
Shareholder Information
Consolidated Financial Statements and Notes
03
04
09
14
20
22
26
43
51
56
61
66
71
72
74
81
83
84
CORPORATE STRUCTURE
Industrias Peñoles, S.A.B. de C.V.
Fresnillo plc (1)
Minera Fresnillo (100%) Minera Penmont
(100%)
Minera Mexicana La Ciénega (100%) Minera Saucito (100%) Comercializadora de Metales Fresnillo (100%)
Exploraciones Mineras Parreña (100%) Minas Peñoles Minera Bismark (100%) Minera Madero (100%) Minera Maple (Naica)
(100%) Minera Tizapa
(51%) Cía. Minera Sabinas
(100%)
Cía. Minera La Parreña (Milpillas) (100%)
Minera Roble (Velardeña) (100%)
Exploraciones Mineras Peñoles (100%)
Minera Peñoles del Perú (100%) Minera Peñoles de Chile
(100%)
Química Magna
Metalúrgica Met-Mex Peñoles (100%)
Magnelec (Química del Rey) (100%) Fertirey (100%) Aguas, Servicios e Inversiones de México (ASIM) (50%) Infraestructura Peñoles
Fuerza Eólica del Istmo (100%) Termoeléctrica Peñoles (100%) Tecnología y Servicios de Agua (TECSA) (51%) Bal Holdings (100%) Línea Coahuila-Durango (50%) Servicios Administrativos Peñoles (100%)
Illustrates the main subsidiaries.
EXPLORATION
Personnel: 825
Investment in 2014: US$216.3 million
MAIN EXPLORATION PROJECTS MEXICO
PEÑOLES
•
Rey de Plata (Guerrero): polymetallic, under construction, investment US$268.0 million Estimated startup: 2017•
Los Humos (Sonora): copper, advanced explorationFRESNILLO PLC
•
San Julián (Chihuahua): silver-gold, under development. Estimated startup: 2015•
Orysivo, Juanicipio, Centauro Deep: advanced explorationINTERNATIONAL
•
Racaycocha (Peru): copper-molybdenum•
Chile and Peru: gold and copper, continuous explorationMINING
Personnel: 6,667
Investment in 2014: US$592.5 million
PROVEN AND PROBABLE RESERVES
•
Gold: 10.0 million ounces•
Silver: 641.2 million ounces•
Lead: 1,689.3 thousand tons•
Zinc: 5,426.7 thousand tons•
Copper: 431,627.7 tonsKEY MINES PEÑOLES
•
Velardeña: Mexico’s second largest zinc mine•
Madero, Tizapa and Bismark: among the five largest Mexico´s zinc mines•
Naica: Mexico’s second largest lead mineFRESNILLO PLC
•
Fresnillo: largest primary silver mine worldwide•
Herradura: one of Mexico´s largest gold minesMETALS
Personnel: 2,386
Investment in 2014: US$46.3 million
MAIN OPERATIONS AND ANNUAL CAPACITIES
•
Lead Smelter: 180,000 tons/lead bullion•
Lead-Silver Refinery: 180,000 tons/lead: 118 million ounces/silver1.9 million ounces/gold 1,440 tons/bismuth
•
Electrolytic Zinc Refinery: 240,000 tons/zincOPERATIONS
•
Met-Mex: one of the largest metallurgical complexes and the top refined silver producer worldwide•
Aleazin: zinc alloys•
Bermejillo: by-productsCHEMICALS
Personnel: 707
Investment in 2014: US$31.6 million
PRODUCTS AND ANNUAL CAPACITIES
•
Sodium sulfate: 780,000 tons•
Magnesium oxide: 100,000 tons•
Magnesium sulfate: 34,000 tons•
Ammonium sulfate: 260,000 tonsOPERATIONS
•
Química del Rey: largest sodium sulfate plant in the Americas and the Western Hemisphere•
Fertirey: ammonium sulfate plant•
Industrias Magnelec75% 100% 100% 100%
(1)Fresnillo plc is listed on the London
Stock Exchange (LSE) since 2008, and has its own management, administrative structure and corporate governance body (more information at www.fresnilloplc.com).
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
OPERATIONS
LOCATION
Night view. Bismark unit, Chihuahua.
3 13 7 8 1 1 1 1 1 2 1 2 1 2 3 2 1 4 3 5 4 3 9 10 5 11 1 2 14 12 2 1 2 6 1 P E R U C H I L E 2 MINING OPERATIONS BASE METALS 1 Bismark 2 Naica 3 Sabinas 4 Velardeña 5 Tizapa 6 Francisco I. Madero 7 Milpillas PRECIOUS METALS 8 La Herradura 9 La Ciénega 10 Fresnillo 11 Soledad-Dipolos (1)
12 Saucito and Saucito II 13 Noche Buena 14 San Ramón
(1) Operations in this unit
are suspended. METALLURGICAL OPERATIONS 1 Met-Mex 2 Bermejillo 3 Aleazin CHEMICAL OPERATIONS
1 Magnelec (Química del Rey) 2 Fertirey 3 Industrias Magnelec DEVELOPMENT PROJECTS 1 San Julián 2 Rey de Plata INFRASTRUCTURE 1 Línea Coahuila-Durango 2 TECSA/ASIM 3 Termoeléctrica Peñoles 4 Termimar
5 Fuerza Eólica del Istmo
OFFICES 1 Exploration 2 Corporate EXPLORATION ACTIVITIES SOUTH AMERICA 1 Peru 2 Chile Note:
Commercial Offices in Matamoros (Tamaulipas, Mexico), Connecticut (United States) and Sao Paulo (Brazil).
BUSINESS MODEL
Our vertically integrated operations comprise a
poly-metallic portfolio from exploration through production
of refined metals and additional value-added
prod-ucts. We focus on being a low cost producer and
make continuous investments in exploration, capacity
expansion and operational efficiency throughout the
business cycle. This strategy, combined with our
sus-tainable development initiatives, talented personnel, a
healthy capital structure and strong corporate
gover-nance practices distinguishes Peñoles and enables us
to add long-term value for our shareholders.
•
Location, study, analysis and development of non-ferrous mineral deposits in Mexico and Latin America (Peru and Chile).•
Key to permanence and long-term growth.•
Permanent portfolio of projects and prospects in various stages of development.•
Continuous investment across economic and metal price cycles.•
Exploitation and benefication of minerals with metallic contents of gold, silver, lead, zinc and copper.•
Replenishment and increase of reserves.•
Operational excellence, cost control.•
Smelting and refining non-ferrous metals.•
High purity refined metals.•
By-products.•
Inorganic chemical products.•
High quality and purity products.•
Integrated solutions for our clients: quality, service, value-added products.•
Strategic partner in the value chain.•
Diversification of products and markets.Exploration
Mines
Metals - Chemicals
Marketing
Infrastructure, Technology & Innovation
Sustainabilit y
Corporate Governance
THE COMPLETE METALS VALUE CHAIN
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
FINANCIAL HIGHLIGHTS
2014 2013 % Var. Net sales (1) 61,555,607 66,550,850 -7.5 Gross profit 16,071,811 18,464,014 -13.0 Exploration expenses 2,879,181 3,498,544 -17.7 EBITDA (2) (3) 15,082,400 16,243,226 -7.1 Operating profit (3) 8,545,978 10,748,278 -20.5Controlling interest in net income 1,199,128 4,760,706 -74.8
Capital expenditures 9,084,928 10,905,404 -16.7
Cash and investments (4) 15,596,703 19,720,182 -20.9
Property, plant and equipment, net 53,788,912 46,481,144 15.7
Total assets 98,452,629 93,027,782 5.8
Total long-term debt (5) 22,312,405 19,806,860 12.6
Total liabilities 42,509,932 37,618,523 13.0
Total stockholders’ equity 55,942,697 55,409,259 1.0
Shares outstanding at year-end 397,475,747 397,475,747 -
Earnings per share 3.02 11.98 -74.8
Dividends per share (6) 1.90 16.63 -88.6
Share price at year-end 288.51 324.18 -11.0
Note: Figures as of December 31, 2014 and 2013 in thousands of Mexican pesos, with the exception of figures per share expressed in pesos.
(1) Includes hedging results.
(2) Earnings Before Interests, Taxes, Depreciation and Amortization. (3) Does not include other income, expense and impairment loss. (4) Includes cash, cash equivalents and short term investments. (5) In 2014 includes short-term debt maturity of $1,913,340. (6) Dividend of $1.90 per share paid on May 26, 2014. Electrolysis area.
0 10 20 30 40 50 60 70 80 90 100 UAFIDA / INTERESES EBITDA / INTERESTS (times) 2010 2011 2012 2013 2014 88.8 95.4 70.6 35.5 15.5 0 1 2 3 4 5
UAFIDA / DEUDA TOTAL
EBITDA / TOTAL DEBT
(times) 2010 2011 2012 2013 2014 2.4 4.3 2.6 0.8 0.7 0 10 20 30
DEUDA TOTAL / CAPITALIZACION TOTAL
TOTAL DEBT / TOTAL CAPITALIZATION
(%) 2010 2011 2012 2013 2014 17.2 13.7 15.6 26.3 28.5 0 50 100 150 200 METALES PRECIOSOS ORO PLATA
PRECIOUS METALS PRICE INDICES
(December 2010 = 100) 2010 2011 2012 2013 2014 150 50 Gold Silver 100 60 80 100 120 140 METALES BASE PLOMO ZINC COBRE
BASE METALS PRICE INDICES
(December 2010 = 100)
2010 2011 2012 2013 2014 100
80
Lead Zinc Copper 120 0 325 650 975 1300 1625 1950 2275 2600 UAFIDA 0 10 20 30 40 EBITDA (millions of US dollars) 2010 2011 2012 2013 2014 1,465.0 2,524.0 2,009.0 1,270.4 % of sales
* Not including hedging results
0 1000 2000 3000 4000 5000 6000 7000 8000 VENTAS SALES* (millions of US dollars) 2010 2011 2012 2013 2014 5,211.1 7,764.1 7,416.8 5,131.7 4,577.3 1,110.4 0 200 400 600 800 1000
INVERSION ACTIVOS FIJOS
CAPITAL EXPENDITURES (millions of US dollars) 2010 2011 2012 2013 2014 519.8 766.0 866.5 853.8 680.4 0 5000 10000 15000 20000 VALOR DE CAPITALIZACION MARKET CAPITALIZATION (millions of US dollars) 2010 2011 2012 2013 2014 14,479.1 17,387.3 19,886.8 9,853.8 7,791.5 10% 20% 30% 40%
-10.8% vs 2013
-12.6% vs 2013
-20.3% vs 2013
-20.9% vs 2013
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
Product SALES $61,555.6 (%) 32.6 Gold 31.9 Silver 11.7 Zinc 6.5 Lead 5.4 Copper 5.3 Concentrates 2.2 Sodium Sulfate 1.0 Magnesium Oxide 0.5 Ammonium Sulfate 2.9 Others
ventas por producto
COST OF PRODUCTION $27,377.8
Structure (%)
23.9 Depreciation 18.2 Freights & Contractors 16.1 Energy
13.7 Operating materials 13.1 Labor
10.8 Maintenance & Repairs 2.1 Raw materials 2.1 Others
estructura del costo de produccion
Geographic SALES $61,555.6 (%) 19.1 Mexico 80.9 International
ventas por mercado
SALES $34,892.1 MINES* (%) 36.8 Silver 29.3 Gold 18.7 Zinc 9.5 Copper 5.7 Lead
ventas totales minas
EXPORT SALES $49,821.8 by region (%) 89.3 United States 2.3 Europe (11 countries) 1.4 South America (8 countries) 7.0 Others (16 countries)
ventas por exportacion
SALES $51,699.9 METALS* (%) 39.4 Gold 36.2 Silver 13.3 Zinc 7.6 Lead 3.5 Others
ventas totales metales
SALES $2,725.6 CHEMICALS (%) 46.8 Sodium Sulfate 26.5 Magnesium Oxide 17.8 Ammonium sulfate 5.1 Magnesium Sulfate 3.8 Others
ventas totales quimicos
Note: Figures expressed in millions of pesos.
*Treatment charges /
GOLD
(%)
74.5 Jewelry 12.7 Medals and coins
8.8 Electronics 2.9 Industrial 1.1 Dentistry
usos oro
Source: GFMS Gold Survey 2014
LEAD
(%)
80.9 Batteries 19.1 Others
usos plomo
Source: Wood Mackenzie, 4Q-2014 Global Lead Long Term Outlook COPPER (%) 30.0 Construction 28.0 Consumer products 19.0 Electronics 12.0 Transportation 11.0 Industrial machinery usos cobre
Source: Wood Mackenzie, 4Q-2014 Global Copper Long Term Outlook
SILVER
(%)
54.3 Industrial
23.0 Jewelry and silverware 22.7 Medals and coins
usos plata
Source: World Silver Survey 2014
The Bismark unit is among the five largest zinc mines in the country.
KEY METALS
AND MAIN
USES*
PEÑOLES’
SPECIFICATIONS
Silver: 99.99% purity (minimum)
Gold: 99.99% purity (minimum)
Lead: 99.97% purity (minimum)
Zinc: 99.995% purity (minimum) Special High Grade 99.900% purity (minimum) High Grade
98.000% purity (minimum) Prime Western
Copper: 99.99% purity (minimum) Grade A cathodes * Note: Financial investment demand is not included.
ZINC
(%)
59.0 Galvanizing 14.0 Die-casting alloys 11.0 Brass semis & castings
9.0 Oxides & chemicals 6.0 Semi-manufactured
products 1.0 Others
usos zinc
Source: Wood Mackenzie, 4Q-2014 Global Zinc Long Term Outlook
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
PRICES
Silver ingot. Met-Mex Refinery, Coahuila.
0 500 1000 1500 2000
Cotizaciones METALES (Carta Director General) ORO GOLD (LONDON) (US$/ounce) 2010 2011 2012 2013 2014 1,224.7 1,568.6 1,668.8 1,411.0 0 5 10 15 20 25 30 35 40
Cotizaciones METALES (Carta Director General) PLATA SILVER (COMEX) (US$/ounce) 2010 2011 2012 2013 2014 20.2 35.2 31.2 23.8 0 50 100 150 200 250 300 350 400 Cotizaciones METALES (Carta Director General)
COBRE COPPER (LME) (US¢/pound) 2010 2011 2012 2013 2014 341.8 400.1 360.6 332.3 0 20 40 60 80 100 120
Cotizaciones METALES (Carta Director General) PLOMO LEAD (LME) (US¢/pound) 2010 2011 2012 2013 2014 97.5 108.9 93.5 97.2 0 20 40 60 80 100
Cotizaciones METALES (Carta Director General) ZINC ZINC (LME SHG) (US¢/pound) 2010 2011 2012 2013 2014 98.0 99.5 88.4 86.7 1,266.2
-10.3% vs 2013
19.0-20.1% vs 2013
95.1-2.2% vs 2013
98.1+13.2% vs 2013
311.2-6.4% vs 2013
INDUSTRIAS PEÑOLES, S.A.B. DE C.V.
ANNUAL REPORT
OF THE BOARD OF
DIRECTORS
to the Shareholders’ Meeting,
corresponding to fiscal year 2014.
Dear shareholders:
As Chairman of the Board of Directors of Industrias Peñoles, S.A.B. de C.V.,
and on behalf of the Board, I present you this report based on an analysis of
the information provided by the Chief Executive Officer in his Annual Report
on the company’s performance, the financial and operating results obtained
in 2014, and key developments in the period, as well as a report on the main
activities of the Board of Directors.
As had been expected, 2014 was a year of great challenges, as
econom-ic conditions were adverse. Precious metal preconom-ices saw a sharp decline and
reached their lowest levels of the past four years: within our industrial metals
portfolio, only zinc had a moderate price increase.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
Along with the unfavorable international metals market,
the domestic industry has had to face the pressures
gen-erated by a rise in energy costs –when in contrast,
in-ternational prices are declining–, difficulties arising from
organized crime activity, conflicts linked to insecurity in
land ownership, and of course, the new mining rights. The
company will pay $500.2 million pesos (hereafter
“mil-lion”) in mining rights –surface, special and
extraordi-nary– corresponding to 2014, representing 41.7% of net
income. In terms of fuel, high overhead costs are being
paid for diesel, the main input for open pit mines,
com-pared to the international price. Clearly, the domestic
min-ing industry has lost much of its competitiveness.
With more than a century of history, Peñoles has
suc-cessfully weathered many difficulties and has overcome
great challenges. The consistency of our strategy of
pru-dent investment and long-term organic growth is essential
to addressing the inherent cyclicality of the industry in a
changing environment. We recognize, however, that our
greatness lies in our people, whose talent, effort and
dedi-cation empower us to face difficult circumstances.
The context of 2014 required us to take particular care of
liquidity; for that reason we put special focus on
control-ling costs and expenses and rationalizing our investments.
Thus, with a view beyond the annual cycle, we carefully
allocated capital resources to sustain and achieve
opera-tional productivity, develop strategic projects and
acqui-sitions, as well as to vital exploration, technological
de-velopment, sustainability, training, safety and community
development activities.
Among our growth projects, a highlight was the completion of construction
of the new sodium sulfate plant at Química del Rey, in the state of Coahuila,
which will expand production capacity by 150,000 tons per year and will
en-able us to consolidate leadership in the domestic market for this product. The
investment was $571.9 million, equivalent to $43 million dollars (hereafter
“US$ million”).
At Fresnillo plc, the new dynamic leaching plant to increase gold recovery
from the Herradura mine in Sonora started up operations, as did Saucito II,
a silver-gold mine in the state of Zacatecas. Investment in these projects
to-taled $1,596.0 million (US$120 million) and $3,125.5 million (US$235 million),
respectively.
At the Rey de Plata project, a polymetallic mine in the state of Guerrero whose
total investment will be $3,564.4 million (US$268 million), development and
infrastructure work continued and critical equipment was received. Operations
are expected to commence in 2017 for the production of zinc, silver, copper
and gold. Construction also advanced according to schedule at Fresnillo plc’s
San Julián gold-silver mine, in the state of Chihuahua, where operations will
start up in 2015.
Fresnillo plc’s financial position enabled it to acquire the 44% stake held by
Newmont USA, Ltd. in the Penmont joint venture, which includes the
Herra-dura, Soledad-Dipolos and Noche Buena gold mines in the state of Sonora,
as well as advanced exploration projects. Through this US$450 million
trans-action, Penmont became 100% Fresnillo plc owned. The change strengthens
its position and improves its outlook for sustained growth in gold production.
As such, investments in fixed assets and exploration totaled $11,964.1 million
(16.9% less than in the prior year); while this amount was lower due to difficult
circumstances, it was sufficient for the disciplined execution of projects and
the proper maintenance of operations, and was in line with our vision of
sus-tained long-term growth.
At Peñoles we seek to establish harmonious and mutually
beneficial relationships with the communities where we
operate, and want to ensure a proactive approach.
There-fore our community investment is also a priority: we
con-tinued and will continue to actively support community
development through the creation of good jobs,
construc-tion of schools, roads and infrastructure, and promoconstruc-tion
of sports, health and recreational activities. Investment in
social support this year was $104.7 million.
In exploration activities, important findings were made in
the portfolio of projects located in Mexico and South
Amer-ica. At the Los Humos copper project (Sonora), and the
Racaycocha copper-molybdenum project (Peru), resource
estimates were conducted, and in the latter, surrounding
concessions were acquired, expanding the potential of
the project. Work on areas surrounding the Velardeña zinc
mine (Durango) and the Milpillas copper mine (Sonora)
helped identify resources with the potential to increase
reserves for these operating units. Fresnillo plc obtained
important findings that increased resources at San Ramón
(Durango), Cardones (Guanajuato) and Pilarica (Peru),
and encouraging results at Herradura (Sonora).
The performance of mining operations in 2014 was solid. Production of metal
contents in the mines exceeded the previous year, with the exception of gold
whose volume was slightly lower due to the stoppage of operations at
Sole-dad-Dipolos and the temporary suspension at Herradura, which resumed its
activities at the end of the first quarter of the year. This decline was partially
offset by higher volumes at Noche Buena and Saucito. A new annual silver
production record was set of 54.4 million ounces, thanks to higher volumes
processed at Saucito and Herradura, and better ore grades at Sabinas. Lead
production increased due to higher volumes and better ore grades and
recov-eries at Velardeña and Saucito, while zinc production had the most growth,
driven by Velardeña, which in just over a year since starting up, is producing
above its original design capacity. As for copper, production rose due to better
ore grade and recovery at Milpillas.
In the metallurgical operations, production volume of refined silver rose due to
better ore grades in the concentrates and materials received, while gold rose
slightly due to higher content of rich materials; lead volume was lower due to
a decline in contents in the concentrates treated, and zinc increased with the
higher volume of concentrates received and better ore grades.
Production volume of sodium sulfate was similar to the previous year;
how-ever, lower demand from the domestic market due the economic situation
af-fected sales of this product. Nonetheless, among the other chemicals, certain
varieties of magnesium oxide registered new production and sales records.
Similarly, magnesium sulfate also attained a new production and sales record
thanks to increased demand in the agricultural market.
In addition, we advanced our strategy of self-sufficiency in electricity
gener-ated from renewable sources. A 25-year energy supply agreement was signed
with the Portuguese company
Electricidad de Portugal Renovables
(EDPR),
for the development of a wind farm with 180 MW of installed capacity to be
built in 2016 in the state of Coahuila. This will ensure the supply of clean
en-ergy generated by this park at very competitive costs.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
After a thorough analysis, the Executive Committee
ap-proved the project to expand refined zinc production
capacity by 100,000 tons per year at the metallurgical
complex in Torreón, Coahuila. This project, expected for
2017, will have new technology and require an investment
of $4,309.2 (US$324 million), and will consolidate our
po-sition as the leading Latin American producer of refined
zinc.
As for financial results, expressed in millions, gross sales
in 2014, excluding hedging results, totaled $61,022.0, a
change of -6.7% compared to 2013. This situation was
primarily due to lower metal prices, with the exception
of zinc, which was partially offset by the higher average
exchange rate of the peso against the dollar. Results from
metal price and exchange rate hedging were lower,
total-ing $533.6. Gross profit was $16,071.8 (-13.0%), EBITDA
was $15,082.4 and operating income totaled $8,546.0
(7.1% and 20.5% lower, respectively). Net income for 2014
was $1,199.1 (-74.8%), and $755.2 in dividends were
de-clared in 2014. The debt to EBITDA ratio was 1.4 times at
year end, with sufficient cash to cover operational,
strate-gic and financial needs for the medium term.
Thanks to efforts to control costs and expenses, and
de-spite lower sales and inflation for several of our inputs,
EBITDA margin on sales remained stable (24.5%)
com-pared to the previous year (24.4%).
However, due to certain differences in the interpretation
of tax provisions, the Metalúrgica Met-Mex-Peñoles
sub-sidiary recorded an extraordinary expense of $1,106.8,
after signing a conclusive agreement with the Tax
Admin-istration Service through the Office of Taxpayer Defense
(PRODECON, for its Spanish acronym), which terminated
the tax audits for the years 2009-2012.
Because our people are our most important asset, we remain committed to
promoting their development in an atmosphere of respect, recognition and
in a safe environment. We have continued, and will not cease, to strengthen
training and safety programs for our employees and contractors. Furthermore,
we have added the ethical performance of our businesses to our Vision, and
we are strengthening the culture of ethics and living these values throughout
the entire organization.
The Board of Directors has adhered to sound corporate governance practices.
To perform its functions, the Board is supported by the committees
recom-mended in the Code of Best Corporate Practices. The Board met four times
in 2014. The following are among the topics discussed and approved at those
meetings:
•
reinforcement of workplace safety and environmental programs;
•
labor-management relations;
•
the metals hedging program;
•
review of the 2014 budget;
•
the basis of the 2015 budget;
•
finalizing contracts for the supply of electricity; and
•
policies for the acquisition and sale of company stock.
Pursuant to the provisions of the Securities Market Law, the Audit and
Corpo-rate Governance Committee prepared its Annual Report, which is presented
to this Shareholders’ Meeting.
The Financial Statements from which comments herein are derived, as well
as the main accounting policies and criteria used in the preparation of the
financial information, were audited by the external auditors and included in
the Annual Report. The company’s Financial Statements were prepared in
accordance with International Financial Reporting Standards, issued by the
International Accounting Standards Board.
Submitted herein for the consideration of this
Sharehold-ers’ Meeting is a report on the main accounting policies
and criteria that serve as the basis of preparation for the
Financial Statements, and which include, among others:
the basis of presentation, consolidation, significant
ac-counting policies and new acac-counting pronouncements,
which were audited by the external auditors and made
part of this Report.
In the opinion of the Board of Directors, the Report
pre-sented to this Shareholders’ Meeting by the Chief
Execu-tive Officer reasonably reflects the financial position and
results of the company, as well as the key developments
of the business during 2014.
In accordance with policies, the performance of senior
executives is evaluated annually. The Nomination,
Evalu-ation and CompensEvalu-ation Committee must authorize any
increase in salary and benefits. Salary increases are
made annually and bonuses are determined based on
the results of performance evaluations. The remuneration
package of senior executives is comprised of a base
sal-ary and legal and other benefits common to the industry
domestically.
In 2015, in the face of new challenges and the expectation that difficult market
conditions will continue, we must work harder to remain competitive, increase
productivity and control costs. We remain firmly committed to maintaining
sound, prudent management practices.
Our confidence in the future is based on the greatness of our people, in their
ability to innovate and give the best of themselves, especially in the face of
adversity: I thank them for their dedication and hard work. I would also like to
thank the members of the Board of Directors for their commitment and
valu-able contributions, and you, dear shareholders, for continuing to place your
confidence in us.
Alberto Baillères
Chairman of the Board of Directors
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
INDUSTRIAS PEÑOLES, S.A.B. DE C.V.
REPORT ON THE
COMPANY’S PERFORMANCE
PRESENTED BY
THE CHIEF EXECUTIVE
OFFICER
to the Board of Directors
corresponding to fiscal year 2014.
Mr. Chairman,
Ladies and Gentlemen members of the Board of Directors:
As Chief Executive Officer of Industrias Peñoles, S.A.B. de C.V., and in accordance with the
provisions of the Securities Market Law, I hereby submit for your consideration the Annual
Report corresponding to the company’s performance and results in the 2014 fiscal year, as
well as the Financial Statements and their accompanying notes, which include the principal
policies and criteria for accounting and reporting that were used in the preparation of the
financial report presented herein.
Without a doubt, 2014 was a very challenging year for Peñoles. The macroeconomic
envi-ronment was difficult and extremely volatile, which negatively affected the prices for most
of the metals we produce. Prices for gold and silver, which represent more than half of our
revenues, saw sharp declines of 10.3% and 20.1%, respectively, compared to the previous
year. This was due, initially, to the withdrawal of the US Federal Reserve’s monetary stimulus
program following signs of recovery in that economy, which resulted in the strengthening
of the dollar against major currencies. This raised expectations for an increase in interest
rates, lessening the attractiveness of precious metals as a safe haven investment.
In contrast, there was a deceleration in the economy of
China, the world’s largest consumer of metals.
Further-more, expectations of growth in Europe were adjusted
downward, and fears emerged in the financial markets of
a possible recession on the continent. Among industrial
metals, zinc was the only one whose price rose (13.2%
on average), due to lower inventories and the closure of
several mining operations. The price of lead was relatively
stable (-2.2%), supported by continued demand from the
automotive industry, while the average price of copper
declined (6.4%) due to the economic deceleration and
reduced dynamism of the construction industry in China,
along with an increase in the global supply.
In addition, new rights for the mining sector were
imple-mented in Mexico while problems of insecurity continued.
The negative effect of lower metal prices was partially
mitigated by the weakening of the Mexican peso against
the dollar (4.2% on average), which benefited the portion
of our production costs denominated in pesos
(approxi-mately 50% of those costs). However, we continued to
face increases above the rate of inflation in several of our
key inputs.
By mandate of the Board of Directors, in the difficult
en-vironment of 2014 we redoubled efforts to contain costs,
reduce expenses and cut non-priority investments, as
well as to optimize the use of working capital, without
af-fecting employment or the development of strategic
proj-ects. We focused on maintaining operational discipline
and increasing the productivity and efficiency of
opera-tions, showing solid performance.
Following are the operating highlights of 2014.
Investment in exploration totaled $2,879.2 million pesos (hereafter “million”),
including our Fresnillo plc subsidiary, a figure 17.7% lower than in the previous
year. Resources were selectively allocated to projects and prospects with the
greatest potential, as well as to replenishing and increasing reserves at
operat-ing mines. Exploratory drilloperat-ing took place at 34 projects in Mexico and South
America, as well as geological and geophysical analyses at several additional
prospects.
At Los Humos disseminated copper-molybdenum project in Sonora, intensive
sampling for metallurgical analysis was conducted in order to provide
certain-ty to the quantified mineral resources, and drilling extended into surrounding
areas. Detailled drilling will take place in 2015 in order to determine if sufficient
mineral resources exist to make a mine project feasible.
At La Industria project, adjacent to the Velardeña zinc mine in Durango,
drill-ing activities intersected attractive sectors to generate reserves that could be
added to the mining unit. Close to the Milpillas copper mine in Sonora,
drill-ing identified an expansion of deep ore bodies with an estimated potential of
6 to 12 million tons of additional mineral, which could become an important
contribution to reserves at this mining unit. A quantification of resources will
be conducted in the first half of 2015.
At the Racaycocha copper-molybdenum project in Peru, resources were
quan-tified and the results were endorsed by a recognized external auditor.
Geo-technical drilling took place to support the design of a possible pit, as well as
technical engineering and geo-hydrological studies. An important advance,
which increases the potential of the project, was the acquisition of 14,000
hectares in neighboring concessions.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
At Fresnillo plc, exploration activities resulted in
miner-alized intersections at Centauro Deep (Sonora), Orisyvo
(Chihuahua) and Pilarica (Peru), and additional drilling
equipment was provided to the gold and silver
explora-tion programs at Bellavista and Tajitos (Herradura
Cor-ridor in Sonora), Rodeo (Durango), Fresnillo (Zacatecas)
and Guanajuato (Guanajuato). The company also
exer-cised its option to acquire 100% of the Candameña
gold-silver project (Chihuahua), in which it has invested US$16
million since 2010.
In the mining operations, the total volume of mineral
milled and deposited was 53.6 million tons, 12.2% more
than in the prior year, due to the resumption of
activi-ties at Herradura at the end of the first quarter of 2014;
also contributing were the higher volumes processed at
Noche Buena and Velardeña, which offset the lack of
production at Soledad-Dipolos, whose operations have
been suspended since mid-2013. Notably, Velardeña
ex-ceeded design capacity, rising from 7,000 to 8,000 tons
per day milled.
The production of gold contents was 2.3% lower due to the
lack of production at Soledad-Dipolos, which was nearly
offset by higher volumes at Noche Buena and Saucito.
A new annual record was set in the production of silver
contents, with 54.4 million ounces (4.3% above last year),
mainly due to higher volumes treated and better ore
grades at Saucito and Sabinas, as well as the increase in
volumes deposited at Herradura.
Lead production of 79.8 thousand tons was 4.8% higher, due to contributions
from Saucito and Velardeña, with higher ore grades, recoveries and volumes
treated. Zinc content notably increased (24.1%), to 265.7 thousand tons,
main-ly due to good performance at Velardeña, with higher volumes treated and
better ore grades.
The copper cathodes produced by the Milpillas unit increased 14.2% thanks
to higher volumes deposited on the leaching pads, which registered an annual
record, as well as better ore grades and recoveries. In addition, copper
con-tained in concentrates surpassed the previous year by 5.2% due to higher
vol-umes of mineral at Bismark and Velardeña, and better recoveries at the latter.
The Naica mine suffered a flood contingency in early 2015, and to date
min-ing operations are suspended at this unit. Every effort is bemin-ing made and all
technical, material and human resources needed are being allocated to try
and recover the mine and restore operations as soon as possible, without
ever exposing workers and contractors. It should be noted that because safety
procedures were followed, there were no human incidents resulting from this
situation.
Among the investments made, of particular note was the acquisition of
mecha-nized equipment for the interior of the mines as part of strengthening safety in
the operations. At Velardeña an expert system was installed to optimize
recov-eries. Mining works and infrastructure development also continued in order to
access deep ore bodies at Madero, and it remained an average two years of
preparation in the mines.
The construction of the Rey de Plata polymetallic mine in the state of Guerrero
progressed as planned, with the development of mining works and
prepara-tion of infrastructure for the necessary facilities at the surface. This mining unit
will have a beneficiation plant capable of milling and processing 1.3 million
tons of mineral per year, producing lead, zinc and copper concentrates. The
investment will be $3,564.4 million (US$268 million) and start up is expected
for the first quarter of 2017.
At our Fresnillo plc subsidiary, the dynamic leaching plant
at Herradura started up operations, which will increase
gold production. In addition, construction was
success-fully completed and operations started up at the Saucito
II silver project in Zacatecas, and development
contin-ued at the new San Julián silver and gold mining unit in
Chihuahua, which is expected to start operations in the
fourth quarter of 2015.
In metals, production of refined gold and silver at the
Met-Mex metallurgical complex was 1.5% and 5.4% higher,
respectively, compared to the previous year. There were
higher inputs of materials rich in gold from third party
remitters, which mitigated the lower volume of dorés
from our own mines, while silver production was driven
by better ore grades in the concentrates received. Lead
production was 2.2% lower, due to lower ore grades in
the concentrates received and the lower volume treated
in the Smelter, while zinc production rose 1.6%, due to
higher volume and better ore grades in the concentrates
received at the electrolytic zinc plant.
In the chemicals business, sodium sulfate production
al-most equaled that of the previous year. In addition,
con-struction of the plant II was successfully completed, which
will increase production capacity by 150,000 tons of
so-dium sulfate annually, enabling us to satisfy the needs of
the domestic market and to grow exports.
Magnesium sulfate, used as a fertilizer, generated extraordinary volumes of
production and sales for the second consecutive year, with good demand
from the agricultural sector. Magnesium oxide had mixed results, with annual
production records in hydroxide and electrical grade, while refractory grade
recorded lower production volume, as part of the strategy to diversify into
higher margin products.
Moreover, we continue taking firm steps in our permanent commitment to
sus-tainability and cost reduction, and in our strategy of energy self-sufficiency
using renewable sources. In this regard, we entered into a 25-year supply
agreement with the Portuguese company
Electricidad de Portugal Renovables
(EDPR) to provide the operations with the energy generated by a wind farm that
will be developed in the state of Coahuila, at a very competitive cost. This
proj-ect will have 180 MW of installed capacity and will become operational in 2016.
Among our initiatives regarding electricity, self-supplied power feeding the
op-erations was 84.8%, less than the 89.3% in the previous year due to increased
demand from the startup of the dynamic leaching plant at Herradura, a full
year of operations at Velardeña, and the construction of Saucito II. The
aver-age unit cost of these sources was US¢7.57 per kWh, 26.0% less than the rate
we would have paid to the Federal Electricity Commission, generating savings
of US$69.2 million in operating costs for the year.
In financial results, gross sales, excluding hedging results, decreased 6.7%
from 2013, to $61,022.0 million. Hedging transactions on metal prices and
exchange rates, which are used to reduce EBITDA volatility, generated a profit
of $533.6 million, 53.9% lower than the year ago figure. Following its
acquisi-tion of 44% of the Penmont joint venture, our Fresnillo plc subsidiary initiated
a partial hedging program to protect the value of its investment, limited to the
portion that was acquired. As a result, net sales (including hedging results)
totaled $61,555.6, a variation of -7.5% from the previous year.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
The cost of sales was $45,483.8 million, 5.4% lower, in
large measure because of the lower cost of metal
pur-chased due to a decrease in gold and silver prices, as
well as lower volumes of lead and zinc mineral purchased
from third parties to supplement intake at the metallurgical
complex. Production costs increased, on the one hand
because of increases for various inputs, and on the other,
because of higher operating levels, especially mining.
Operating expenses were 2.5% lower, primarily in
explora-tion. EBITDA of $15,082.4 million and operating income of
$8,546.0 million declined 7.1% and 20.5%, respectively. An
extraordinary expense of $1,106.8 million was recorded
with the signing of a conclusive agreement by the
Met-Mex-Peñoles subsidiary with the Tax Administration
Ser-vice to the Office of the Taxpayer Advocate (PRODECON
for its Spanish acronym), due to differences in the
inter-pretation of certain tax provisions, mainly on the matter of
Value Added Tax; this agreement terminated the tax audits
of 2009-2012. In addition, higher financial expenses were
incurred given the full year of interest payments to holders
of Fresnillo plc bonds (US$800 million), which were issued
in November 2013.
Net income for the year of $1,199.1 million was 74.8%
low-er than in the previous year.
At Peñoles, we know that our most valuable resource is our people. Thus
their health and wellbeing are our priority. We remain committed to, and will
never cease, strengthening a culture of safety through ongoing training and
in-creased supervision of the operating units. Labor negotiations with the various
unions were held in a cordial and respectful manner and in an atmosphere of
mutual cooperation. This contributed to the continuity of our operating units
and promoted a productive labor environment.
Furthermore, we have made important progress in the human resources
strat-egy to attract, retain and develop personnel with the most talent and potential.
Since the implementation of the strategic plan, we know that having the right
people for growth is a key element in making Peñoles as great as its people.
That is why, as part of our efforts to promote ethical conduct and living our
values, we started conducting workshops on these topics throughout the
or-ganization.
I would like to extend my appreciation for the trust, invaluable support and
clear direction provided by the Chairman, members of the Board of Directors
and Executive Committee members. I also thank our employees for their
tre-mendous efforts, dedication and commitment in the face of the difficulties we
overcame in 2014, and the prospect of greater challenges ahead. I am certain
they will continue to give the best of themselves.
Fernando Alanís Ortega
Chief Executive OfficerConsistency in our strategy of prudent
investment and long-term organic
growth is essential to addressing the
inherent cyclicality of the industry in a
changing environment.
$15,082.4 million,
EBITDA TOTALED
WITH A MARGIN OF 24.5% OVER SALES,
STABLE IN RELATION TO 2013
TOTAL VOLUME OF MINERAL
MILLED AND DEPOSITED WAS
53.6 MILLION TONS,
MORE THAN IN 2013
CONSTRUCTION
WAS COMPLETED
AT THE SODIUM
SULFATE PLANT II,
WHICH INCREASED
PRODUCTION
CAPACITY BY
THOUSAND
TONS
CONTENTS AT
MILLION OUNCES
MILLION IN THE YEAR
INVESTMENT IN SOCIAL
SUPPORT WAS
$104.7
SILVER
54.4
150
12.2%
INVESTMENTS IN FIXED
ASSETS AND EXPLORATION
TOTALED
$11,964.1
MILLION
AN ANNUAL RECORD
WAS SET IN THE
PRODUCTION OF
AN AGREEMENT WAS SIGNED
WHEREBY WE WILL RECEIVE THE
ENERGY TO BE PRODUCED BY A
WIND FARM IN COAHUILA, WITH
OF INSTALLED CAPACITY
180 MW
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
IN THE DIFFICULT ENVIRONMENT OF 2014,
WE FOCUSED ON MAINTAINING DISCIPLINE
AND INCREASING THE PRODUCTIVITY AND
EFFICIENCY OF THE OPERATIONS, WHICH
HAD SOLID PERFORMANCE.
INVESTMENTS
(millions of US dollars)
Main allocation 2014 2013
EXPLORATION In operating mines and in portfolio projects at different stages of development. 216.3 274.9
MINES Amortizable mine works, construction of projects, new tailings dams and various fixed assets. 592.5 745.7
METALS Elimination of interferences for zinc expansion, replacement of fixed assets, several constructions and building improvements. 46.3 63.5
CHEMICALS Construction of the plant to expand production capacity of sodium sulfate. Replacements and
improvement of furnaces. 31.6 35.9
ENERGY Various components and replacement parts at Fuerza Eólica del Istmo. 1.3 3.3
OTHERS 8.7 5.2
TOTAL 896.8 1,128.5
Access ramps into the Rey de Plata polymetallic mine, Guerrero, currently under construction.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
The exploration of proprietary projects plays a key role in the
growth strategy of Peñoles; therefore we continuously invest
in these activities, with the aim of identifying opportunities
that will allow us to develop new mines in Mexico, Peru and
Chile, primarily. We have a team of highly specialized
geolo-gists engaged in the exploration, detection and evaluation of
mining projects, as well as the analysis of third party owned,
early stage development projects that may be of interest to
Peñoles.
In the last five years Peñoles has invested a total of US$1,117.1 million,
re-sources that have provided us with a large portfolio of prospects and projects
in various stages of development. Due to the significant drop in prices for
most metals in 2014, investment in exploration (including operating mines)
was US$216.3 million, 21.3% below the previous year. This investment,
how-ever, was sufficient, selective and directed at the projects with the greatest
potential, in line with the goals set out in our strategic plan.
The Peñoles and Fresnillo exploration teams drilled 76,300 meters on ten
projects located in Mexico, Peru and Chile. In addition, geological work and
assessments were performed in 42 potential areas, in preparation for
subse-quent stages of direct exploration.
Exploration at La Industria. Around the Velardeña unit, Durango.
The results of the main projects were as follows:
LOS HUMOS (COPPER)
Location: Caborca, Sonora
2014 investment: US$2.8 million
In Los Humos disseminated copper project, a total of
8,250 meters of drilling took place. Metallurgical analyses
are currently underway based on a thorough sampling of
the areas initially drilled and quantified, whose results will
be determinant in defining the mineral resources.
Drill-ing was also conducted in five surroundDrill-ing areas where
geophysical and geochemical studies indicated the
pos-sibility of finding new ore bodies. In 2015, detailed
drill-ing is expected to take place in these areas in order to
consolidate sufficient mineral resources to determine the
feasibility of a new mining project.
LA INDUSTRIA (POLYMETALLIC)
Location: Cuencamé, Durango
2014 investment: US$2.3 million
At this lead, zinc and silver project adjacent to the new Velardeña mine, 14,670
meters were drilled, defining attractive vein sectors for generating mineral
re-serves that could complement production at Velardeña.
Others
Adjoining the Milpillas copper mine in Sonora, 16,650 meters were drilled,
which identified an expansion of deep ore bodies with an estimated potential
of 6 to 12 million tons of mineral that could be an important contribution to the
reserves of the mine. Depending on the extent of the new ore body, a
quanti-fication of resources is expected to take place in 2015.
Detailed exploration and drilling work was conducted at the San Juan de
Gua-dalupe, Palmira, Aporo, Leon and La Dicha prospects in Mexico, with the aim
of identifying mineralized copper and polymetallic zones that would justify the
creation of new mining projects. Surveying was reinforced and work intensified
on potential bands, in order to maintain and grow the portfolio of prospects in
support of generating new mining projects in the future.
International exploration
At the Racaycocha copper-molybdenum project in Peru, 7,590 meters of
geo-technical drilling took place to support the design of a possible pit, as well as
various geo-hydrological and engineering studies. Moreover, mineral
resourc-es were quantified with the rresourc-esults submitted to an external audit that certified
the quality of the processes used and the reliability of the results.
An important advance in the consolidation of this project was the
acquisi-tion of neighboring concessions from the Canadian company Duran Ventures,
which included El Águila project (copper-molybdenum), and other small
own-ers, increasing the potential areas for exploration. Thus, the Racaycocha
proj-ect today includes concessions covering 28,000 hproj-ectares of land fertile for
exploration, always within the framework of harmonious relations and
collabo-ration with the communities.
Continuous exploration remains a pillar of our organic growth strategy.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
In Chile, 7,920 meters were drilled at La Laguna and
Nicolé copper projects, where results merit follow up.
Geological and geophysical work began at the Llancahue
copper prospect, under an exploration contract with Coro
Mining Company with a purchase option. In addition, an
intense campaign of surveying and evaluation of more
than 40,000 hectares of concessions in this country is
underway.
Fresnillo plc
Fresnillo plc’s exploration programs continued in the Herradura (Sonora),
Fres-nillo (Zacatecas) and Ciénega (Durango) districts. Drilling was also conducted
at Rodeo (Durango), where boreholes increased the area of gold oxide
min-eralization, and in Guanajuato, where economic silver ore grades intersected.
Additional mineralized intersections were identified at Centauro Deep
(Sono-ra), Orisyvo (Chihuahua) and Pilarica (Peru).
Moreover, Fresnillo exercised its option to acquire 100% of the Candameña
gold-silver project in Chihuahua, given the consistency of results from
explora-tion activities underway since 2010. Drilling activities resumed on this open
pit project.
Attractive mineralized sectors intersected at La Industria, Durango.
Exploration is strategic for replenishing and increasing reserves for the mines in operation. Tizapa mine, State of Mexico.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
0 10 20 30 40 50 60 70 80 Producciones MINAS PLOMO LEAD (thousands of tons) 2010 2011 2012 2013 2014 62.1 62.5 67.8 76.1 0 100 200 300 400 500 600 700 800 Producciones MINAS ORO GOLD (thousands of ounces) 2010 2011 2012 2013 2014 569.1 686.2 718.6 648.0 0 50 100 150 200 250 300 Producciones MINAS ZINC ZINC (thousands of tons) 2010 2011 2012 2013 2014 181.1 182.4 182.2 214.2 0 10 20 30 40 50 60 Producciones MINAS PLATA SILVER (millions of ounces) 2010 2011 2012 2013 2014 50.0 49.3 49.1 52.2 0 5 10 15 20 25 30 Producciones MINAS COBRE CATODICO COPPER CATHODES (thousands of tons) 2010 2011 2012 2013 2014 21.8 26.4 23.2 22.8
MINING
PRODUCTION
0 3 6 9 12 15 Producciones MINAS COBRE COPPER* (thousands of tons) 2010 2011 2012 2013 2014 14.2 13.9 10.6 10.7*Does not include copper cathodes
Mineral production was higher for most metal contents.
633.4
-2.3% vs 2013
54.4+4.3% vs 2013
265.7+24.1% vs 2013
79.8+4.8% vs 2013
11.3+5.2% vs 2013
26.1+14.2% vs 2013
FINANCIAL HIGHLIGHTS
2010 2011 2012 2013 2014 Net sales 26,220 38,555 39,288 30,294 29,848 Gross profit 16,086 24,950 22,236 12,305 10,283 % of sales 61.3% 64.7% 56.6% 40.6% 34.5% EBITDA 12,769 25,607 21,270 11,955 11,323 % of sales 48.7% 66.4% 54.1% 39.5% 37.9% Operating profit 14,685 22,406 16,856 7,447 5,824 % of sales 56.0% 58.1% 42.9% 24.6% 19.5%Note: Unaudited figures expressed in millions of pesos.
Figures represent the sum of the separate financial statements of the operating companies in the Mining Division without corporate fees.
The Velardeña unit, in Durango, is the second largest producer of zinc nationwide.
MINING
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
CONTRIBUTION BY MINE
633,359
GOLD ounces (%) 41.9 Herradura 20.4 Noche Buena 17.1 Ciénega 9.0 Saucito 5.6 Fresnillo 4.9 Tizapa 1.1 OthersPARTICIPACION POR MINA ORO Herradura 41.9% Noche Buena 20.4% Ciénega 17.1% Saucito 9.0% Fresnillo 5.6% Tizapa 4.9% Velardeña 0.9% Naica 0.1% Bismark 0.0% Madero 0.0% Sabinas 0.0% Milpillas 0.0% Soledad & Dipolos 0.0%
79,758
LEAD tons (%) 24.7 Naica 17.4 Fresnillo 14.7 Madero 12.5 Saucito 9.1 Tizapa 9.1 Sabinas 5.9 Ciénega 5.2 Velardeña 1.4 BismarkPARTICIPACION POR MINA PLOMO Naica 24.7% Fresnillo 17.4% Madero 14.7% Saucito 12.5% Tizapa 9.1% Sabinas 9.1% Ciénega 5.9% Velardeña 5.2% Bismark 1.3% Herradura 0.0% Milpillas 0.0% Soledad & Dipolos 0.0% Noche Buena 0.0%
54.4
SILVER million ounces (%) 36.9 Fresnillo 28.3 Saucito 10.0 Tizapa 8.5 Sabinas 7.5 Ciénega 3.4 Naica 1.6 Madero 3.8 OthersPARTICIPACION POR MINA PLATA Fresnillo 36.9% Saucito 28.3% Tizapa 10.0% Sabinas 8.5% Ciénega 7.5% Naica 3.4% Madero 1.6% Velardeña 1.5% Herradura 1.2% Bismark 0.8% Noche Buena 0.2% Milpillas 0.0% Soledad & Dipolos 0.0%
265,712
ZINC tons (%) 31.6 Velardeña 16.0 Madero 15.4 Tizapa 14.3 Bismark 5.8 Naica 5.7 Fresnillo 4.9 Sabinas 4.0 Saucito 2.3 OthersPARTICIPACION POR MINA ZINC Velardeña 31.6% Madero 16.0% Tizapa 15.4% Bismark 14.3% Naica 5.8% Fresnillo 5.7% Sabinas 4.9% Saucito 4.0% Ciénega 2.3% Herradura 0.0% Milpillas 0.0% Soledad & Dipolos 0.0% Noche Buena 0.0%
37,331
COPPER tons (%) 69.8 Milpillas 16.7 Sabinas 5.3 Bismark 4.2 Velardeña 2.1 Tizapa 1.9 MaderoPARTICIPACION POR MINA COBRE Milpillas 69.8% Sabinas 16.7% Bismark 5.3% Velardeña 4.2% Tizapa 2.1% Madero 1.8% Ciénega 0.0% Herradura 0.0% Fresnillo 0.0% Naica 0.0% Soledad & Dipolos 0.0% Saucito 0.0% Noche Buena 0.0%
* Copper cathodes 26,051 tons
TOTAL PRODUCTION
Control room. Sabinas unit, Zacatecas.
Peñoles directly operates seven underground mines in
Mexico that produce zinc, lead and copper concentrates,
and copper cathodes. Our mines position us as the
coun-try’s leading producer of zinc contents and the second
largest in lead. In addition, we consolidate the results of
Fresnillo plc, a subsidiary in which we maintain a 75%
eq-uity stake, and which has three underground mines and
three open pit mines that produce mainly gold and silver
concentrates, doré, precipitates and other materials.
The mining operations had solid performance in 2014,
and as a result, production of most metals increased
compared to 2013. The volumes of ore milled and
depos-ited totaled 13.3 and 40.3 million tons, 10.5% and 12.8%
higher, respectively, than in the previous year.
Production of metal contents in 2014 and their variation
with respect to 2013 (including 100% of the production of
Fresnillo plc) was as follows:
•
Gold:
633,359 ounces (-2.3%)
•
Silver:
54.4 million ounces (+4.3%), record
•
Lead:
79,758 tons (+4.8%)
•
Zinc:
265,712 tons (+24.1%)
•
Copper:
11,280 tons (+5.2%)
•
Copper cathodes:
26,051 tons (+14.2%)
The decline in gold production was due to the stoppage of operations at
the Soledad-Dipolos mine in mid-2013 and the temporary suspension of the
explosives permit at Herradura due to a communal conflict that halted
opera-tions at this mine in the second half of 2013, and where operaopera-tions resumed
in late March 2014. The higher volume of ore processed at Noche Buena and
Saucito helped offset the lack of production at Soledad-Dipolos.
A NEW ANNUAL RECORD WAS SET IN SILVER
PRODUCTION THANKS TO HIGHER VOLUMES TREATED
AND BETTER ORE GRADES AT SAUCITO AND SABINAS,
AND TO A LESSER EXTENT, THE CONTRIBUTION OF
THE VELARDEÑA, HERRADURA AND NOCHE BUENA
UNITS, WHERE HIGHER VOLUMES OF ORE WERE
PROCESSED, WITH BETTER ORE GRADES AND
RECOVERIES.
The increase in lead production came mainly from Saucito and Velardeña due
to higher volumes processed, and better ore grades and recoveries, followed
by Madero with higher ore grades and metallurgical recovery.
Zinc volume increased significantly, driven by higher volumes milled and better
ore grade at Velardeña, which reached capacity after one year of operation
and even exceeded milling expectations.
The increase of copper contents in concentrates was due to greater production
at Velardeña, Madero and Bismark, while copper cathodes produced at
Milpil-las had a very favorable change due to better ore grades in the rich solution,
which shortened the recovery period, as well as higher volumes deposited on
the leaching pads.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
Highlights from the mining units
VELARDEÑA
(zinc)
Ownership: 100% Peñoles
In operation since May 2013
Location: Cuencamé, Durango
Installed capacity: 1.9 million tons milled/year
PRODUCTION
Contents
2014 2013 % Var.
Ore milled (kton) 2,003 1,160 72.7
Gold (oz) 5,443 1,882 189.4
Silver (koz) 831 366 127.0
Lead (ton) 4,144 1,761 135.4
Zinc (ton) 83,968 41,197 103.8
Copper (ton) 1,573 687 128.9
kton = thousands of metric tons, oz = ounces, koz = thousand ounces, ton = metric tons.
Velardeña completed its first year of operation in May 2014. It is Peñoles’
larg-est zinc mine and the second larglarg-est at the national level; thanks to Velardeña,
the state of Durango rose from seventh to third place nationally in the
produc-tion of zinc.
This mining unit had very favorable performance during the year, as it
sur-passed design capacity in milling and processing, increasing from 7,000 to
8,000 tons per day, which contributed, along with better ore grades, to higher
production of all metal contents. Recoveries were also higher for silver, lead
and copper.
Among the investments made, of particular note was the construction of a
new tailings dam at an investment of US$10 million, which will have capacity
to store seven years of tailings. Studies were undertaken on freeboard
con-struction for the current dam to increase capacity by three years. In addition,
US$830,000 was invested to incorporate the expert system in the milling and
flotation operations of the concentrator plant in order to optimize metallurgical
recoveries, and an additional US$370,000 in a traffic control system for the
ore hauling operations.
Moreover, we implemented the LabWare LIMS management system at the
unit’s laboratory, which increases the accuracy of the chemical analyses of
mineral samples.
TIZAPA
(polymetallic: zinc-lead-copper-silver-gold)
Ownership: 51% Peñoles, 39% Dowa Mining and 10%
Sumitomo Corporation
In operation since 1994
Location: Zacazonapan, State of Mexico
Installed capacity: 800 thousand tons milled/year
PRODUCTION
Contents
2014 2013 % Var.
Ore milled (kton) 860 843 2.1
Gold (oz) 31,311 34,516 -9.3
Silver (koz) 5,442 5,409 0.6
Lead (ton) 7,283 7,414 -1.8
Zinc (ton) 40,978 38,730 5.8
Copper (ton) 792 973 -18.6
TIZAPA CELEBRATED ITS TWENTIETH
ANNIVERSARY AND THREE CONSECUTIVE YEARS
OF BREAKING RECORDS IN PRODUCTION,
MILLING AND PROCESSING MINERAL, THANKS TO
THE DEDICATION AND EFFORTS OF ITS PEOPLE
AS WELL AS INVESTMENTS MADE IN EQUIPMENT
AND TECHNOLOGY.
The higher volumes contributed to the growth in production of silver and zinc
metal contents, along with improved recoveries. This was not the case for
gold, lead and copper, whose production was lower due to lower ore grades
in the mineral processed.
In February, the new metallurgical laboratory started up operations at this unit,
as part of a program to modernize the laboratories at all the mines. Also, a
die-sel maintenance workshop started up inside the mine in August, to increase
the availability and utilization of equipment.
Night view. Tizapa unit, State of Mexico.
2014 ANNUAL REPORT_AS GREAT AS OUR PEOPLE
FRANCISCO I. MADERO
(zinc)
Ownership: 100% Peñoles
In operation since 2001
Location: Morelos, Zacatecas
Installed capacity: 2.7 million tons milled/year
PRODUCTION
Contents
2014 2013 % Var.
Ore milled (kton) 2,237 2,293 -2.5
Silver (koz) 880 1,083 -18.8
Lead (ton) 11,731 10,332 13.5
Zinc (ton) 42,485 43,060 -1.3
Copper (ton) 682 557 22.3
MADERO IS ONE OF THE LARGEST ZINC MINES
IN MEXICO. THE VOLUME OF ORE MILLED WAS
LOWER THAN IN THE PREVIOUS YEAR DUE TO
THE HARDNESS OF MINERAL COMING FROM THE
STOPES BEING EXPLOITED AT THE START OF THE
PERIOD. IN LIGHT OF THIS SITUATION, SEVERAL
ACTIONS WERE TAKEN, THE MOST IMPORTANT
OF WHICH WAS AN INCREASE IN THE SIZE OF
THE BALLS IN THE SAG MILL, WHICH HELPED
INCREASE THE RATE OF MILLING FROM 7,000 TO
7,350 TONS PER DAY.
The lower volume of ore processed negatively affected the production of silver
contents, as did lower ore grade and recovery. In contrast, production of lead,
zinc and copper offset the shortfall in volume with better grades and
metal-lurgical recoveries.
In 2014 development continued on the Madero Deep project, which will
al-low access to thirteen million tons of proven mineral reserves with higher ore
grades of silver and zinc, thus ensuring operational continuity. Work was
con-ducted on infrastructure for ventilation, pumping and backfilling for three new
deep ore bodies, with a total advance of 995 meters on the three main ramps.
Construction of the No. 2 tailings dam was also completed in its first phase
(cell 1), with storage capacity for five years and an investment of US$4.6
mil-lion. The full project comprises four cells to deposit tailings from approximately
thirteen years of operation. In addition, the third phase of extraction via DPM
mining method (Double Post Mining) was initiated, which is safer and more
efficient; 11,816 tons were extracted using this system.
Panorama. Madero unit, Zacatecas.
