Fresnillo's Silver Output Declines Amid Operational Challenges, Gold Surges in Q1 2025

Fresnillo PLC, the world’s largest primary silver producer, reported a 8.4% year-on-year decline in silver production for Q1 2025, driven by planned mine closures, lower ore grades, and operational hiccups. Meanwhile, gold output surged 10.8% year-on-year, fueled by higher grades at its Herradura mine and the strategic depletion of gold inventories. Despite these mixed results, Fresnillo reaffirmed its 2025 production guidance, signaling confidence in its ability to navigate near-term challenges.

Ask Aime: How does Fresnillo's silver production decline affect its market position?

Silver: A Story of Planned Closures and Grade Volatility

Fresnillo’s total silver production, including its Silverstream project, fell to 12,377 thousand ounces (koz) in Q1 2025—a 9.7% quarterly drop and an 8.4% annual decline. The San Julián Disseminated Ore Body (DOB), which contributed significantly to past production, ceased operations in November 2024 as part of a planned closure, removing a key source of high-grade silver. Additionally, lower ore grades and reduced processing volumes at Saucito—due to equipment shortages and dilution—exacerbated the decline.

At Fresnillo’s namesake mine, silver output rose 2.1% year-on-year thanks to improved grades, but this was overshadowed by broader sectoral headwinds. Fresnillo’s flotation plant constraints and reduced development rates (down to 2,916 meters/month) further limited progress.

Gold: Herradura’s Strong Start, Offset by Mine-Specific Challenges

Gold production reached 156,105 ounces in Q1, a 10.8% annual increase driven by Herradura’s stellar performance. The mine processed higher-grade ore and drew on accumulated inventories, though these are now depleted. However, quarterly gold output fell 23.5% from Q4 2024 due to lower volumes and grades.

Saucito and Ciénega mines struggled with reduced gold grades and processing volumes, contributing to a 28.9% year-on-year decline in Saucito’s gold production. Ciénega’s gold output dropped 23.8% year-on-year as equipment delays and lower-grade ore hampered operations.

By-Products: Lead and Zinc Under Pressure

Lead production fell 10.9% quarter-on-quarter to 15,030 tons, with zinc declining 12.8% to 25,249 tons. Both metals suffered from lower ore grades and the closure of San Julián’s DOB, though higher grades at Juanicipio partially offset losses for lead.

Operational Hurdles and Strategic Priorities

Fresnillo highlighted two critical challenges:
1. Equipment Shortages: Bolting equipment delays at Saucito and Ciénega reduced ore processing volumes, a recurring issue exacerbated by global supply chain constraints.
2. Mine-Specific Issues: Fresnillo’s flotation plant availability dropped, and San Julián’s unplanned maintenance disrupted processing.

Despite these hurdles, Fresnillo maintained its 2025 production guidance:
- Silver: 49.0–56.0 million ounces (including Silverstream).
- Gold: 525.0–580.0 thousand ounces.
- Silver equivalent ounces: 91–102 million.

Outlook and Risks

Fresnillo’s guidance hinges on expected improvements in H2 2025. Ciénega’s gold grades are projected to rebound to 1.1–1.3 g/t, while Herradura aims to stabilize production with grades between 0.50–0.70 g/t. The company also emphasized cost discipline, aided by a favorable MXN/USD exchange rate, which reduced currency-related pressures.

However, risks remain:
- Commodity Price Volatility: Silver and gold prices could erode margins if they fall below Fresnillo’s cost structures.
- Operational Uncertainty: Equipment delays and mine-specific issues could persist, challenging production targets.
- Regulatory and Environmental Risks: Mexico’s evolving mining policies and environmental compliance costs pose long-term concerns.

Conclusion: Fresnillo’s Resilience, but H2 Will Be Critical

Fresnillo’s Q1 results underscore its operational complexity: while gold’s surge provides a bright spot, silver’s decline highlights the need for sustained grade management and equipment stability. The company’s adherence to its 2025 guidance—despite Q1’s mixed performance—suggests confidence in its ability to recover.

Investors should monitor Fresnillo’s H2 progress closely. If Ciénega and Herradura meet revised grade expectations, and equipment shortages are resolved, the company could still achieve its upper-end production targets. With silver prices near $25/oz and gold at $2,000/oz—both above Fresnillo’s all-in sustaining costs—the fundamentals remain supportive.

However, the stock’s valuation, currently trading at a 12-month forward EV/EBITDA of ~6.5x, reflects these risks. Fresnillo’s success in 2025 will depend on execution: turning operational headwinds into tailwinds before year-end. For now, the story remains one of cautious optimism, anchored in the company’s scale and long-term resource base.