Fresnillo Regulatory News (FRES)

Fresnillo plc

21 Upper Brook Street

London W1K 7PY

United Kingdom

www.fresnilloplc.com

1 August 2017

Fresnillo plc interim results

for the six months to 30 June 2017

Financial highlights (1H17/1H16 comparisons)

· Adjusted revenue of US$1,069.5m, up 11.5%

· Gross profit and EBITDA of US$460.0m and US$522.5m, up 16.6% and 10.2%, respectively

· Profit from continuing operations before net finance costs and income tax of US$377.9 million, up 24.2%

· Profit for the period of US$310.1m, up 87.2%

· Basic and diluted EPS from continuing operations of US$41.9 cents per share, adjusted EPS of US$36.7 cents per share, up 84.6% and 200.8%

· Cash generated from operations, before changes in working capital of US$540.3m, up 13.7%

· Net cash from operating activities of US$354.2m, down 13.2%

· Strong balance sheet with cash, cash equivalents and short-term investments as at 30 June 2017 of US$884.9m

· Interim dividend of US$78.1m (10.6 US cents per share)

Operational highlights (1H17/1H16 comparisons)

· Silver production of 28.0 moz (including Silverstream), up 11.2%, and gold production of 446 koz, broadly in line

· Construction of San Julián (phase II) completed on time and on budget and commercial production began in mid-July

· The turnaround plan at the Fresnillo mine continues to show good signs as volume of ore processed increased for the fourth consecutive quarter.

· On track to achieve 2017 production target of 58-61 moz silver (including Silverstream) and 870-900 koz gold

Highlights for 1H16

* Silver production includes volumes realised under the Silverstream Contract

1 Adjusted revenues are the revenues shown in the income statement adjusted to add back treatment and refining costs and the effects of gold, lead and zinc hedging. The Company considers this is a useful additional measure to help understand underlying factors driving revenue in terms of volumes sold and realised prices

2 Earnings before interest, taxes, depreciation and amortisation (EBITDA) is calculated as gross profit plus depreciation less administrative, selling and exploration expenses

3 The weighted average number of shares for H1 2017 and H1 2016 was 736.9m. See Note 8 in the Interim Consolidated Financial Statements.

Octavio Alvídrez, Chief Executive Officer of Fresnillo plc, said:

"We are pleased to report a strong first half of the year, with silver production up 11% and gold production stable at 446 thousand ounces. This performance was driven by the successful ramp-up of San Julián (phase I) since its start-up in the second half of 2016 and the operational improvements made at the Fresnillo mine.

The turnaround plan at the Fresnillo mine continues to progress with ore processed increasing for the fourth consecutive quarter.

We completed the construction of San Julián (phase II) on time and on budget and I am confident that this new mine will be further proof of the effectiveness of our strategy of continued investment in quality growth. We are applying the same disciplined approach to the construction of the pyrites plant in the Fresnillo district and the second line of the dynamic leaching plant at Herradura and expect to commission both projects in 2018.

We have intensified exploration activities around our mining districts and prioritised areas with the greatest potential. We are confident that these efforts will provide a solid base upon which our future growth will be built.

The solid operational performance was supported by higher metal prices, delivering good financial results during the period. Our ongoing commitment to investing in cost reduction initiatives and efficiency projects is increasingly relevant as some cost pressures in Mexican pesos are starting to be evident after the devaluation of the Mexican peso relative to the US dollar. We will continue to work on maintaining a competitive cost position and preserve our profit margins.

Our priorities for the second half of this year are to make further progress to ensure Fresnillo is operating at full capacity as well as the ramp-up of San Julián (phase II). I am confident that we are well positioned to meet our 2017 production targets and establish the basis for long-term growth as we approach the 10 year anniversary of Fresnillo plc".

Commentary on the Group's results

Fresnillo plc delivered a strong operating performance with an 11.2% increase in silver and unchanged volumes of gold production. The key drivers were the contribution of San Julián (phase I), the increased processed ore at Fresnillo and a good performance in the remainder of our operating mines.

The improvements achieved in Fresnillo plc's financial results were underpinned by increases in metal prices and, in particular, of silver, lead and zinc. The average realised silver price for Fresnillo plc increased 5.2% to US$17.4 per ounce in 1H17, whilst the average realised gold price remained flat at US$1,250.3 per ounce in 1H17 (US$1,245.6 per ounce in 1H16). Furthermore, the average realised lead and zinc prices increased 32.3% and 44.5% respectively on 1H16.

Total revenues increased 12.3% half on half to US$995.8 million in the first six months of 2017, reflecting the higher metals prices during the period and the increased volumes of silver and zinc sold.

Adjusted production costs of US$343.0 million increased by 14.4% over 1H16. This increase was mainly due to the additional production costs from the start-up of San Julián (phase I), the net higher production costs related to increased ore throughput at our operating mines (except for Ciénega), the increase in unit prices of electricity and diesel and the 5.75% increase in wages in Mexican pesos. This was partly offset by the 8.1% devaluation of the average Mexican peso/US dollar spot exchange rate and efficiencies achieved at Fresnillo, Herradura and Noche Buena.

The higher adjusted production costs, together with a minor increase in depreciation, resulted in an increase of 8.8% in cost of sales over the first half of 2016.

The increase in revenues more than offset the increase in cost of sales, resulting in a 16.6% increase in gross profit to US$460.0 million.

Administrative expenses rose by 24.9% due to an increase in services provided by third parties associated with telecommunications, additional administrative personnel hired to service a larger number of mines and projects, and increased non-recurring engineering and construction services provided by Servicios Industriales Peñoles, S.A.B de C.V.

Exploration expenses of US$64.2 million rose 23.4% over the first half of 2016 as a result of the intensive exploration programme undertaken in our operating mining districts and projects with the highest potential.

The higher gross profit, offset by higher administrative and exploration expenses resulted in a 10.2% increase in EBITDA. However, EBITDA margin decreased slightly from 53.4% in the first half of 2016 to 52.5% in the same period of 2017.

During the period, other income (non-operating) of US$23.4 million was recognised in the income statement resulting from the sale of non-strategic mining claims in relation to the San Juan project to Argonaut Gold Inc.

Net finance costs included US$17.0 million from the interest recognised in the income statement in relation to the US$800 million debt facility raised in November 2013. In addition, a non-cash loss of US$35.2 million was recognised in respect of the gold hedging programme put in place to protect the investment made in the acquisition of the 44% stake of Newmont in Penmont in 2014.

During the period, there was a positive revaluation of the Silverstream of US$54.8 million due most significantly to the reclassification of silver resources into reserves at the Sabinas mine and a higher silver price.

The 13.4% spot revaluation of the Mexican peso against the US dollar in the six months to 30 June 2017 had a favourable effect on the value of peso-denominated net current assets when converted to US dollars, resulting in a foreign exchange gain of US$3.8 million in the first half of 2017.

Profit from continuing operations before income tax increased by 51.8% from US$255.1 million to US$387.4 million.

Income tax expense decreased 15.7% to US$62.2 million, despite the fact that profit before taxes increased by 51.8%. This resulted from the impact of the exchange rate and inflation rate on deferred taxes for each individual year (see Financial review section). The effective tax rate, excluding the special mining right, was 16.0%, and 20.0% including the effects of the special mining right.

Net profit for the period was US$310.1 million, an 87.2% increase over the first half of 2016.

Cash flow generated by operations, before changes in working capital, increased by 13.7% to US$540.3 million.

Capital expenditure totaled US$264.3 million, an increase of 33.0% over the first half of 2016. Investments during the period included construction at the San Julián project, the pyrites plant and second line of the dynamic leaching plant at Herradura, development at Fresnillo and Saucito and construction of leaching pads at the open pit mines.

Other uses of funds during the period were income tax and profit sharing paid of US$211.9 million (US$67.9 million in 1H16) and dividends paid of US$158.4 million (US$24.8 million in 1H16).

The Group maintained a strong balance sheet. Cash, cash equivalents and short-term investments (together defined as "short-term funds") as at 30 June 2017 amounted to US$884.9 million, a 26.2% increase compared to the US$701.2 million in short term funds at the end of June 2016 and a 3.0% decrease over the year-end total of US$912.0 million. Taking into account the short-term funds of US$884.9 million and the US$796.5 million amortised cost of the Senior Notes, Fresnillo plc's net cash position was US$88.4 million as at 30 June 2017. 

The Board of Directors has declared an interim dividend of 10.6 US cents per share totaling US$78.1 million to be paid on 8 September 2017 to shareholders on the register on 11 August 2017. This decision was made after a comprehensive review of the Company's and Group's financial situation, ensuring that the Group is well placed to meet its current and future financial requirements, including its development and exploration projects.

Fresnillo plc reported a fatal injury at the beginning of 1H17. Following investigations, management has taken certain measures to address and prevent the root causes of fatal injuries and established a number of new initiatives, including a pilot project at the Saucito mine to further develop the competences of supervisors.

Growth

Fresnillo plc remains committed to disciplined and sustainable profitability. Our high quality growth pipeline allows us to focus on projects with the potential to be developed into world class low-cost mines such as San Julián, re-affirming the effectiveness of Fresnillo's strategy of continued investment in quality growth. Over the first half of the year, the construction of the flotation plant at San Julián (phase II) was completed, on time and on budget, with commercial production commencing mid-July. Ramp up to full capacity is expected over the next two months.

Following our disciplined approach, construction of the pyrites plant in the Fresnillo district advanced, as did the second line of the dynamic leaching plant at Herradura, with both expected to be commissioned in 2018.

Construction of the ramp at the Juanicipio project continued. Based on ongoing assessments of the project, the decision has been made to commission a feasibility study by a third party consultant. The study is expected to be finished by year end and, upon completion, will be presented for Board approval. This project will be developed on a stand-alone basis and is expected to be commissioned in 2020, with an annual average production of 10 million ounces of silver and 30 thousand ounces of gold.

In exploration, interesting results were obtained at Fresnillo, San Julián, Guanajuato, and San Juan extending known ore shoots and identifying new structures.

We continue to expect full year 2017 total risk capital investment in exploration of US$160 million. Capital expenditure for this year has been revised, from US$800 million to US$700 million, as a result of deferred development and mining works mainly at Fresnillo and Herradura, together with deferred capex at Juanicipio.

Strategy continues to deliver with Fresnillo on track to meet 2018 silver production target of 65 million ounces, having already surpassed 2018 gold target of 750 thousand ounces.

Outlook

Our proven strategy remains consistent: we seek to create sustained value for stakeholders across precious metal cycles, balancing growth with returns. Our low cost operating mines provide a solid platform from which we are able to deliver our high quality development projects and continue to grow our exploration pipeline, bringing forward high potential silver and gold projects capable of being developed into low cost world-class mines. This is all achieved within the context of a maturing sustainability framework.

Our high quality, low cost assets, and significant quality growth pipeline, combined with our balance sheet strength, leave us well placed to perform throughout the cycle.

We remain on track to meet our 2018 silver production target of 65 million ounces, having already surpassed our 2018 gold target of 750 thousand ounces.

Presentation for Analysts

Octavio Alvídrez, Chief Executive Officer and Mario Arreguín, Chief Financial Officer, will host a presentation for analysts on Tuesday 1st August at 9am (BST) at Bank of America Merrill Lynch, 2 King Edward St, London EC1A 1HQ

For analysts unable to attend dial in details are:

Dial-in number: UK 0800 279 4992

US 1877 280 2342

MX 001 877 550 9931

Access code: 2031820

A webcast can be accessed at: www.fresnilloplc.com

For further information, please visit our website: www.fresnilloplc.com or contact:

About Fresnillo plc

Fresnillo plc is the world's largest primary silver producer and Mexico's largest gold producer, listed on the London and Mexican Stock Exchanges under the symbol FRES.

Fresnillo plc has seven operating mines, all of them in Mexico - Fresnillo, Saucito, Ciénega (including the San Ramón satellite mine), Herradura, Soledad-Dipolos1, Noche Buena and San Julián (phase I and II), two development projects - the pyrites plant, and second line of DLP at Herradura, and four advanced exploration projects - Orisyvo, Juanicipio, Las Casas Rosario & Cluster Cebollitas and Centauro Deep, as well as a number of other long term exploration prospects. In total, Fresnillo plc has mining concessions covering approximately 1.8 million hectares in Mexico.

Fresnillo plc has a strong and long tradition of mining, a proven track record of mine development, reserve replacement, and production costs in the lowest quartile of the cost curve for silver.

Fresnillo plc's goal is to maintain the Group's position as the world's largest primary silver company, producing 65 million ounces of silver per year by 2018, having already surpassed the gold target of 750,000 ounces.

Forward Looking Statements

Information contained in this announcement may include 'forward-looking statements'. All statements other than statements of historical facts included herein, including, without limitation, those regarding the Fresnillo Group's intentions, beliefs or current expectations concerning, amongst other things, the Fresnillo Group's results of operations, financial position, liquidity, prospects, growth, strategies and the silver and gold industries are forward-looking statements. Such forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Fresnillo Group's operations, financial position and liquidity, and the development of the markets and the industry in which the Fresnillo Group operates, may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. In addition, even if the results of operations, financial position and liquidity, and the development of the markets and the industry in which the Fresnillo Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations (including the US dollar and Mexican Peso exchanges rates), the Fresnillo Group's ability to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, changes in its business strategy and political and economic uncertainty.

1 Operations at Soledad-Dipolos are currently suspended.

Operational Review

Production

First half silver production (including Silverstream) increased 11.2% on 1H16, mainly due to: i) the contribution of San Julián (phase I) following its commissioning in 3Q16; ii) higher ore processed at the Fresnillo mine, resulting from the increased access to the San Alberto area; and iii) higher silver ore grade at Ciénega due to the increased contribution from Taspana and San Ramón. These increases were partly offset by the expected lower ore grade and recovery rate at Saucito and, to a lesser extent, the lower volume from the Silverstream due to the lower silver ore grade at Sabinas.

First half gold production remained flat when compared to the same period of 2016 as the expected lower production from Herradura and Noche Buena, together with the lower gold ore grade at Saucito, were nearly offset by the contribution of San Julián (phase I).

First half by-product lead production remained stable half on half, whilst year to date by-product zinc production increased versus 1H16 mainly as a result of the higher ore grades, recovery rates and ore processed at the Fresnillo mine.

The Group remains on track to meet its 2017 production guidance of 58-61 moz of silver (including Silverstream) and 870-900 thousand ounces of gold.

Fresnillo mine production

First half silver production increased 7.8% on 1H16 mainly due to higher ore processed and, to a lesser extent, higher ore grades. This resulted from the increased access to the San Alberto area following improvement in the maintenance process and increased operative supervision which allowed for the preparation of higher ore grade areas. These factors more than offset the lower recovery rate.

The turnaround plan at the Fresnillo mine continued to progress with volume of ore processed increasing for the fourth consecutive quarter.

We expect full year silver production at this mine to show an increase between 7-10% compared to 2016.

First half by-product lead production increased versus 1H16 as a result of higher ore processed.

First half by-product zinc production increased over 1H16 due to higher ore grades, recovery rates and ore processed.

Saucito mine production

Year to date silver production decreased versus 1H16 mainly due to the expected lower ore grade in 2017 compared to the exceptionally high ore grade from the development ore from the West and Central areas at the Jarillas vein in 2016. The temporary limited access to higher ore grade areas, due to the programmed anchoring activities aimed at enhancing safety, also impacted silver production. Additionally, a lower recovery rate resulting from the calibration of the cyclones at the vibrating screens also contributed to the decrease in silver production, though to a lesser extent. These effects, however, were partly mitigated by the increase in ore processed from the West and Central Jarillas areas and the increased capacity of the plants following the installation of the vibrating screens.

First half by-product gold production decreased when compared to 1H16 due to lower ore grade and lower recovery rate, which were partly mitigated by the higher ore processed.

By-product lead production for 1H17 decreased when compared to the same period of 2016 mainly as a result of the lower ore grade and recovery rate. First half by-product zinc production decreased versus 1H16 due to lower ore grade.

Ciénega mine production

Year to date gold production decreased slightly versus 1H16 as a result of a lower recovery rate and, to a lesser extent, lower ore processed. However, these factors were partly offset by the higher ore grade from the West and East areas.

First half silver production increased over 1H16 mainly due to the higher ore grade at the Taspana and San Ramón areas.

First half by-product lead production increased versus 1H16 mainly as a result of higher ore grade which was partly compensated for by the lower recovery rate.

Half year by-product zinc production increased vs 1H16 as a result of a higher ore grade and recovery rate.

Herradura mine production

First half gold production decreased versus 1H16 due to the smaller decrease in gold inventories at the leaching pads compared to the larger one-off reduction in inventory level in 2016, and the lower ore grade. We do not expect this to fall further, but rather increase marginally over 2H17.

Noche Buena mine production

First half gold production decreased versus 1H16 due to the lower overall speed of recovery in 2017 compared to 1H16, when new mineral layers were deposited at the leaching pads. This was partly mitigated by the higher volume of ore processed.

San Julián (phase I) mine production

First half production at San Julián (phase I) reached 3.0 million ounces of silver and over 41,000 ounces of gold following the start-up of commercial production in 2H16.

The mine continues to operate above its nominal capacity and further optimisation projects are underway to achieve an average 4,000 tpd capacity by year-end.

Growth Projects

Capital expenditure for the full year 2017 was revised and is now expected to be in the region of US$700 million. Below we provide an update on each of our growth projects that have been approved by the Board.

San Julián

The construction of San Julián (phase II) has been completed on time and on budget. The milling facility was commissioned, tests with load were concluded and commercial production commenced in mid-July.

This US$515 million silver-gold project has an expected average production of 10.3 million ounces of silver and 44,000 ounces of gold per year once at full capacity.

Pyrites Plant at the Saucito mine

During the period, the assembly of the agitation tanks and foundations of the milling building were concluded. The construction of the thickeners continued and further progress was achieved in the installation of filters at the Merrill Crowe plant.

This US$155 million project is estimated to contribute an annual production of 3.5 moz of silver and 13 koz of gold once the plant is commissioned in 1H18 and reaches full capacity.

Second Dynamic Leaching Plant at Herradura

During the second quarter, foundations for the milling area and assembly of the agitation tanks continued.

The construction of this US$110 million project will continue throughout 2017 with commissioning expected in 2018, and will extend the life of Herradura's mine to 12 years with an average life of mine annual gold production of 390 koz.

Below we provide an update on other projects which are expected to contribute to our medium and long term growth. These projects have not yet been approved by the Board and are subject to ongoing internal review. However, certain minor works and exploration activities might be in progress in preparation for Board approval and as such, are included within this year's approved capex and exploration budget.

Optimisation projects

Fresnillo optimisation project

During the first half of 2017 the detailed engineering for the zinc thickener was concluded and works to prepare the area where this equipment will be located commenced. The relocation of the thickener from the tailings plant to the beneficiation plant will improve the mine's capacity to cope with the higher zinc grades. The next stage will be the assembly of additional flotation cells and cleaners in the froth flotation circuit. The final stage in this optimisation project would be the installation of vibrating screens to increase the milling capacity to 9,000 tonnes per day. Capital expenditure for this project is estimated at US$30 million and the expansion is expected to result in an additional annual average production of 3 million ounces of silver upon commissioning, expected in 2018.

Ciénega optimisation project

The exploration campaign was intensified at the Taspana and Tajos veins. Based on the results, we will continue to evaluate the potential expansion of milling capacity to 5,000 tpd at this mine.

This US$55 million project is currently expected to commence production in 2019, with average annual production estimated at an additional 15 thousand gold ounces and 1.3 million silver ounces.

Advanced exploration projects

Juanicipio

During the first half, construction of the ramp continued and further progress was made in the evaluation of the new scope of this project following the increase in resources. Based on ongoing assessments of the project, the decision has been made to commission a feasibility study by a third party consultant. The study is expected to be finished by year end and, upon completion, will be presented for Board approval. This project will be developed on a stand-alone basis and it is expected to be commissioned in 2020, with an annual average production of 10 million ounces of silver and 30 thousand ounces of gold.

Centauro Deep

During the first half, we continued to refine the geological model and evaluate different options, which could impact the scope of this project. We will provide updates on the project in due course. 

Orisyvo

During the first half, we continued our evaluation of the economic viability of this project. This US$350 million project is currently expected to commence production in 2021.

Exploration

In 1H17, US$64.2 million of exploration expenses were recorded in the income statement, an increase of 23.4% over 1H16, reflecting intensified exploration activities at Herradura, San Julián and Cebollitas in the Ciénega district.

In the first six months of 2017, 233,000 metres of drilling were completed at our operating mines as part of a 428,000 metre programme to direct mine development and partially convert resources into reserves. Additionally, 200,000 metres of exploration drilling were carried out as part of the 394,000 metre programme at projects.

Presently 17 areas are in drilling and interesting results were obtained at Fresnillo, San Julián, Guanajuato, and San Juan extending known ore shoots and identifying new structures. At Candameña drilling has extended the mineralisation to depth. Our prospecting teams continue working in selected areas of the favourable silver-gold belts in Mexico, Peru, Chile and Argentina.

Total risk capital invested in exploration for the full year 2017 is expected to be around US$160 million.

Reserves and resources estimates will be updated by the Company and subsequently audited by SRK at year end.

Health and safety, human resources, environment and community relations

Health & Safety

Safety is our highest priority, and we recognise that our safety culture must be further strengthened and deeply embedded. We regret to report one fatal injury in the first half of 2017. Following investigations, management has taken decisive steps to address and prevent the root causes of fatal injuries and established a number of new initiatives: "rules that save lives", "operational discipline" and "behavioural change". In 1H17, our Total Recordable Injury Frequency Rate (TRIFR) was 27.48 injuries per 1,000,000 hours (16.93 in 2016) and the Lost Time Injury Frequency Rate (LTIFR) was 8.81 injuries per 1,000,000 hours (5.99 in 2016). The accident severity rate (Lost work days per 1,000,000 hours worked) increased from 312 in 2016 to 442 for 1H17. The recovery duration rate (Lost work days / number of lost-time injuries + fatalities) decreased from 52 in 2016 to 50 for 1H17. Improving safety performance, while increasing the workforce requires further developing the competences of our supervisors. A pilot project has been launched to train a group of trainers at the Saucito mine to lead change in safety practices.

We strive to keep our workforce healthy and prevent occupational diseases. Our approach is to pre-empt and manage the health risks to which our workforce is exposed. There are no new cases of occupational diseases to report for 1H17. Health staff are being trained to develop competences in environmental monitoring and ergonomics in the workplace and industrial hygiene action plans will be implemented in the upcoming semester. Preventive care and the promotion of healthier lifestyles can limit certain chronic diseases and enhance overall wellness and fitness for work. Our Healthy Lifestyles programme supports healthy eating habits and the prevention and control of obesity-related diseases. This programme includes raising awareness (doing exercise, healthy diet tips, etc.) and sessions with nutritionists and psychologists.

Environment

We are committed to minimising the impact of our activities and being transparent and accountable regarding our environmental footprint. Our environmental management system ensures effective compliance with regulations. Our operations in Fresnillo, Ciénega and Penmont are certified in ISO 14,001. Fresnillo, Saucito, Ciénega and Penmont have the clean industry certification of the Environmental Authorities in Mexico. In the Penmont district, the Herradura and Noche Buena mines have the 'Cyanide Code' certification. We disclosed our environmental performance in the water and climate change programmes of the CDP (formerly known as the Carbon Disclosure Project).

Community Relations

Our communities are strategic partners. Gaining and maintaining their trust requires not only engagement but also being accountable for our impact; building this trust is the only way to obtain and preserve our social licence to operate. During 1H17, we organised 193 activities with the communities across our operations and exploration projects, and supported over 660 requests for contributions from the communities.

Our social investments target education, skills and competences development and social welfare. Accordingly, we partnered with the NGO International Board on Books for Young People (IBBY) to bring books and children together. With the valuable support of IBBY Mexico, we implemented the programme at 57 schools, benefiting 6,549 children of the Fresnillo district, Guanajuato, Penmont, San Julián and La Ciénega. In addition, we partnered with INNOVEC and the state government of Zacatecas to support the teaching of science in elementary schools. The programme has been implemented in 43 schools, benefiting 5,507 children in the Fresnillo district.

We also collaborate with the NGO Proempleo to train and develop the skills in small businesses, helping to diversify the economies of mining communities. To date, 25 entrepreneurs have been trained to develop their business plans in the Fresnillo district.

Furthermore, we provided visual and dental healthcare during a health week, which we jointly organised with The National University Foundation. This benefited 1,610 people in the Fresnillo District. In 2H17, health weeks will be organised in Ciénega, San Julián and Penmont.

People

We seek to attract, develop and retain the best people, and engage them over the long-term. In 1H17, Fresnillo plc's workforce totalled 4,519 employees (4,293 in 2016) and 9,935 contractors (7,815 in 2016). Total and voluntary turnover rates are respectively 9.29% (10.5% in 2016) and 5.13% (6.3% in 2016). The percentage of women and women executives are respectively at 8.21% (8.5% in 2016) and 4.72% (4% in 2016).

To reinforce our Talent Development Programme, we assessed 135 out of 223 employees in junior positions in mining, exploration, planning and maintenance to identify their strengths and areas of opportunity. Of these employees, 69 were identified as HiPos (high leadership potential and high performance). A career plan is being developed to prepare them for future leadership positions within the organisation. In 2H17, an assessment for supervisors will be carried out.

Fresnillo plc is recognised as a Great Place to Work in Mexico, currently ranking 22th among companies with more than 5,000 employees.

Ethics Culture

We aspire to demonstrate a well-established ethical culture through our actions and behaviours. We joined the Business Ethics Leadership Alliance (BELA) of the Ethisphere Institute to identify and adopt ethical best practices. We evaluated our governance, compliance and social responsibility practices using Ethisphere Institute's Ethics Quotient ™. In addition, we applied Ethisphere's Culture & Perceptions survey to gain further insights on the strengths and weaknesses of our ethics culture. The outcomes of these evaluations have provided key elements to strengthen our ethics initiatives.

Our HSECR strategies are aligned with the United Nations Sustainable Development Goals (SDG's) and our performance was recognised through inclusion in the STOXX Global ESG leaders. In addition, the Company participated in the evaluation questionnaire of the Dow Jones Sustainability Index (DJSI). The Company will disclose its first Modern Slavery Statement for 2016 in August.

Related party transactions

Details of related party transactions that have taken place in the first six months of the current financial year are detailed in note 16 of the financial statements.

Financial Review

The interim consolidated financial statements of Fresnillo plc for the first halves of 2017 and 2016 have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union. Management recommends reading this section in conjunction with the Interim Financial Statements and their accompanying Notes.

Income Statement

Income Statement Key Line Items

Six months ended 30 June

(in millions of US$)

1 Adjusted revenues is the revenue shown in the income statement adjusted to add back treatment and refining costs and the effects of gold, lead and zinc hedging. The Company considers this is a useful additional measure to help understand underlying factors driving revenue in terms of volumes sold and realised prices.

2 Earnings before interest, taxes, depreciation and amortisation (EBITDA) is calculated as gross profit plus depreciation less administrative, selling and exploration expenses.

3 The weighted average number of shares for H1 2017 and H1 2016 was 736.9m. See Note 8 in the Consolidated Financial Statements.

Fresnillo plc's financial results rely on the Group's asset quality, skilled personnel and management's execution capabilities. However, there are a number of macroeconomic variables affecting the financial results which are beyond the Group's control. A description of these variables is provided below.

Metal prices

The average realised silver price increased 5.2% from US$16.6 per ounce in 1H16 to US$17.4 per ounce in 1H17, whilst the average realised gold price remained flat at US$1,250.3 per ounce in 1H17 (US$1,245.6 per ounce in 1H16).

The average realised lead price increased by 32.3% to US$1.0 per pound in 1H17, whilst the average zinc price rose 44.5% on 1H16 to US$1.2 per pound.

Hedging

In the second half of 2014, Fresnillo plc initiated a one-off hedging programme to protect the value of the investment made in the Penmont acquisition. The hedging programme was executed for a total volume of 1,559,689 oz of gold with monthly maturities until December 2019.

The table below illustrates the expired structures and the outstanding hedged position as of 30 June 2017.

Fresnillo plc's hedging policy remained unchanged for the remainder of the portfolio, providing shareholders with full exposure to gold and silver prices.

The Group did not hedge any of its by-product lead and zinc production in 1H17.

Foreign exchange rates

The average spot Mexican peso/US dollar exchange rate devalued by 8.1% from $18.04 per US dollar in 1H16 to $19.49 per US dollar in 1H17. This devaluation resulted in a favourable effect estimated at US$11.4 million on the Group's production costs, as costs based on Mexican pesos, as opposed to those denominated in or pegged to the US dollar (approximately 45% of total costs) were lower when converted to US dollars.

The Mexican peso/US dollar spot exchange rate at 30 June 2017 was $17.90 per US dollar, compared to the exchange rate at 31 December 2016 of $20.66 per US dollar. The 13.4% spot revaluation had a favourable effect on the net monetary peso asset position, which contributed to the US$3.8 million foreign exchange gain recognised in the income statement. This revaluation also impacted deferred income taxes as explained below.

Hedging

As previously reported, Fresnillo plc decided that it would suspend its Mexican peso exchange rate hedging programme to hedge payment of certain peso denominated production costs. The Group continues to enter into certain exchange rate derivative instruments as part of a programme to manage its exposure to foreign exchange risk associated with the purchase of equipment denominated in Euro (EUR), Swedish krona (SEK) and Canadian dollar (CAD).

Cost Inflation

The estimated cost inflation half on half was 4.3%, which includes the positive effect of the 8.1% average devaluation of the Mexican peso/US dollar exchange rate.

Labour

Unionised employees received a 5.75% increase in wages in Mexican pesos and administrative employees at the mines received a 4.5% increase. Taking into consideration the 8.1% average devaluation of the Mexican peso against the US dollar, personnel costs decreased by a net 3.1% in US dollar terms.

Deflation of key operating materials in US$ terms

Unit prices of the majority of key operating materials decreased in US dollar terms. However, this was partly offset by the increase in the unit price of other reagents, particularly those linked to the price of copper and zinc, reflecting the higher metals prices. As a result, the weighted average unit prices of all operating materials over the half decreased by 3.7%. However, unit prices excluding the favourable effect of the average devaluation decreased by 2.3%.

Electricity

The weighted average cost of electricity in US dollars increased 37.2% from US$5.5 cents per kw in 1H16 to US$7.6 cents per kw in the same period of 2017, reflecting the higher average generating cost charged by the government owned utility company following the increase in the prices of natural gas and fuel and, to a lesser extent, of imported coal.

Diesel

The weighted average cost of diesel in US dollars increased by 20.3% from US$62.4 cents per litre in 1H16 to US$75.1 cents per litre in 1H17.

Contractors

Contractor costs are an important component of the Group's total costs and include costs incurred by contractors relating to operating materials, equipment and labour. The weighted average increase in contractor unit costs in US dollar terms was 1.7%.

Maintenance

Unit prices of spare parts to provide maintenance decreased by approximately 2.3% in US dollars in 1H17.

Others

Other cost line items included a 5.6% increase in freight, a 13.4% decline in insurance premium per unit and an average deflation of 0.8% for the remaining components over the first half of 2016.

Total revenues

Consolidated Revenues

(US$ millions)

1 Adjusted revenues is the revenue shown in the income statement adjusted to add back treatment and refining costs and the effects of gold, lead and zinc hedging. The Company considers this is a useful additional measure to help understand underlying factors driving revenue in terms of volumes sold and realised prices.

Adjusted revenues of US$1,069.5 million increased 11.5% over 1H16 mainly as a result of higher volumes of silver sold and higher silver, zinc and lead prices.

Adjusted revenues1 by metal

(US$millions)

1 Adjusted revenues is the revenue shown in the income statement adjusted to add back treatment and refining costs and the effects of gold, lead and zinc hedging. The Company considers this is a useful additional measure to help understand underlying factors driving revenue in terms of volumes sold and realised prices

As expected, the contribution of San Julián (phase I) together with the increase in the silver price changed the relative proportion of adjusted revenues, with silver revenues representing 39% of total adjusted revenues in 1H17 compared to 36% in 1H16. Gold contribution to adjusted revenues decreased from 56% in 1H16 to 51% in 1H17, reflecting the change in relative prices and stable volumes of gold sold. In contrast, by-product lead and zinc contribution to the Group's adjusted revenues increased from 8% in 1H16 to 10% in 1H17 due to the higher lead and zinc prices and increased volumes of zinc sold primarily from the Fresnillo mine.

San Julián (phase I) contributed 9.6% to the Group's adjusted revenues with 2.9 moz of silver and nearly 41 koz of gold sold in 1H17. Herradura and Saucito continue to be the main contributors, representing 26.3% and 23.7% respectively of the Group's adjusted revenues. Fresnillo's contribution increased from 18.9% to 20.5%, reflecting the increased volumes of silver, lead and zinc sold at higher prices during 1H17.

The start-up of San Julián (phase I) also modified the relative contribution to silver adjusted revenues. This new mine represented 12.3% of total silver adjusted revenues in 1H17, whilst Saucito, Fresnillo and Ciénega's contributions decreased as expected, reflecting an expanded silver asset base.

Contribution to gold revenues also changed half on half, with San Julián contributing 9.5% to gold adjusted revenues and Herradura and Noche Buena's participation decreasing from 56.3% and 22.8% respectively to 51.1% and 20.4% in 1H17.

The contribution by metal and by mine to adjusted revenues is expected to change further over future periods as new projects are incorporated into the Group's operations and as precious metal prices fluctuate.

Gold Adjusted revenues by mine

Silver Adjusted revenues by mine

Total adjusted revenues by mine

Volumes of metal in products sold

Six months ended 30 June

Treatment and Refining charges

Similar to previous years, the 2017 treatment and refining charges (TRCs) per tonne and per ounce are currently being negotiated with Met-Mex in accordance with international benchmarks and will apply retrospectively from January 2017. Treatment and refining charges in these Interim Financial Statements were assumed to be the same as those which were negotiated for the full year 2016, a consistent approach taken to that in 1H16.

Treatment charges per tonne of lead and zinc concentrate for the first half of 2017 decreased 11.0% and 21.7% respectively, whilst silver refining charges decreased 4.3% compared to 1H16. However, these favourable effects were offset by the increase in the volumes of lead and zinc concentrates and precipitates shipped to Met-Mex. As a result, treatment and refining charges in absolute terms remained broadly flat half on half.

Cost of sales

4 Adjusted production cost is calculated as total production costs less depreciation, profit sharing and the effects of exchange rate hedging.

Cost of sales of US$535.8 million increased by 8.8% over 1H16 as a result of the following combination of factors:

· Adjusted production costs increased by 14.4% to US$343.0 million in 1H17. The US$43.3 million increase was largely explained by i) the additional production costs from the San Julián (phase I) start-up estimated at US$30.1 million and ii) the net higher production costs related to increased ore throughput at our operating mines, except for Ciénega, estimated at US$11.6 million. This was partly offset by the positive effect of the 8.1% devaluation of the average Mexican peso/US dollar spot exchange rate estimated at US$11.4 million and efficiencies achieved at Fresnillo, Herradura and Noche Buena estimated at US$9.8 million. In addition, each production cost component was affected by the below cost inflation/deflation (excluding the benefit of the devaluation):

− Cost of energy increased by US$17.1 million due to higher unit prices of electricity and diesel

− Contractor costs rose by US$4.2 million due to the contract adjustments recorded during the first half of the year with each individual contractor in Mexican pesos terms

− Personnel costs, excluding profit sharing, increased by US$1.5 million as a result of the 5.75% increase in wages in Mexican pesos

− Cost of operating materials decreased by US$1.5 million

− Cost of maintenance decreased by US$0.7 million

− Other cost inflation of US$2.2 million

· Depreciation increased by US$2.6 million mainly due to the additional asset base from San Julián, partially offset by lower depreciation at the other operating mines.

· The variation in change in work in progress had a positive effect of US$21.6 million half on half. Change in work in progress was US$16.0 million in 1H17 as a result of the further decrease in inventories on the leaching pads at Herradura, albeit not of the same magnitude as the decrease in 1H16.

· Profit sharing decreased slightly by US$1.0 million.

· Given that the Mexican peso exchange rate hedging programme was suspended, there was no effect in the income statement in 1H17, whereas a US$2.6 million loss was recorded in 1H16.  

· There was no effect recorded in the income statement as a result of the valuation of inventory carrying cost at Soledad-Dipolos, whereas a favourable effect of US$22.6 million was recorded in 1H16.

Cost per tonne and cash cost per ounce

Cost per tonne is a key indicator to measure the effects of mining inflation and cost control performance at each mine. This indicator is calculated as total production costs, plus ordinary mining rights less depreciation, profit sharing and exchange rate hedging effects, divided by total tonnage processed.

* Start-up period

Cost per tonne across the Group were benefited by the 8.1% devaluation of the average Mexican peso against the US dollar. This positive effect was offset, and in some cases more than offset, by the higher unit prices of electricity (37.2%) and diesel (20.3%) and by the 5.75% increase in wages in Mexican pesos for unionised workers and the higher contractor fees. Factors affecting cost per tonne at each mine are described below:

Fresnillo

Cost per tonne milled remained broadly unchanged half on half. Higher cost of energy, together with higher contractor costs and personnel costs due to an increased headcount and the increase in wages in Mexican pesos, were mostly offset by the devaluation of the Mexican peso and the efficiencies achieved from the 5.8% increase in ore throughput.

Saucito

Cost per tonne milled increased 11.9% mainly as a result of an increase in development works charged to production costs, an increase in contractor costs resulting from the higher fees paid and additional contractors hired, the increase in energy costs and the 5.75% increase in wages in Mexican pesos granted to unionised workers. These adverse effects were mitigated by the devaluation of the Mexican peso against the US dollar.

Ciénega

Cost per tonne milled increased 16.7% mainly as a result of the lower volume of ore processed, increased in development works and maintenance, an increased number of contractors, the higher unit price of electricity and diesel and the increase in wages in Mexican pesos to unionised personnel. This was mitigated by the devaluation of the Mexican peso.

Herradura

Cost per tonne decreased 6.6% mainly due to the lower stripping costs charged to production costs, the positive impact of the higher ore deposited and the devaluation of the Mexican peso, which more than offset the increase in the unit price of diesel.

Noche Buena

Cost per tonne decreased by 10.2% as a result of the increased volumes of ore deposited, the devaluation of the Mexican peso and the lower cost of operating materials. This was partly mitigated by the higher cost of energy.

CASH COST PER OUNCE5

5 Cash cost per ounce is calculated as total cash cost (cost of sales plus treatment and refining charges and mining rights less depreciation) less revenues from by-products divided by the silver or gold ounces sold.

* Start-up period

Fresnillo: US$1.25/oz (1H17) vs US$3.56/oz (1H16), (-US$2.31/oz; -64.9%)

The decrease in cash cost per ounce was primarily driven by higher by-product credits (zinc and lead) and, to a lesser extent, higher silver ore grades.

Saucito: US$1.64/oz (1H17) vs US0.83/oz (1H16), (+US$0.81/oz; +96.3%)

Cash cost per ounce increased due to the higher cost per tonne and the expected lower silver ore grade. These negative factors were mitigated by the higher lead and zinc by-product credits and lower profit sharing.

Ciénega: -US$242.81/oz (1H17) vs -US$121.68/oz (1H16), (-US$121.13/oz; N/A)

The decrease in cash cost per gold ounce was primarily explained by the higher by-product credits, which were partly offset by the increase in cost per tonne.

Herradura: US$483.91/oz (1H17) vs US$485.23/oz (1H16), (-US$1.32/oz; -0.3%)

Cash cost per gold ounce remained stable half on half mainly as a result of the lower cost per tonne, offset by the lower gold ore grade.

Noche Buena: US$804.1/oz (1H17) vs US$778.38/oz (1H16), (US$25.74/oz; 3.3%)

The increase in cash cost was driven by the adverse effect of the reversal of the write down of gold inventories on the leaching pads in 1H16. This was partly compensated for by the lower cost per tonne and the higher gold ore grade in 1H17.

All in sustaining cost

All-in sustaining costs are calculated as traditional cash cost plus on-site general, corporate and administrative costs, community costs related to current operations, capitalised stripping and underground mine development, sustaining capital expenditures and remediation expenses.

The changes in all-in sustaining costs at each mine are explained below:

Fresnillo: All-in sustaining cost decreased due to lower administrative costs and a decrease in cash cost, partially offset by the increase in sustaining capex.

Saucito: All-in sustaining cost increased due to the higher cash cost and an increase in sustaining capex. 

Ciénega: The decrease in all-in sustaining cost was mainly driven by the decrease in cash cost.

Herradura: Higher all-in sustaining cost due to the increased capitalised stripping costs and higher administrative costs.

Noche Buena: The increase in all-in sustaining cost was due to higher cash cost.

All-in sustaining costs are affected by ad hoc expenses recorded in each particular year, and therefore may significantly vary year on year.

Gross profit

Total gross profit, excluding hedging gains and losses, increased by 16.6% to US$460.0 million in 1H17. The US$65.6 million increase resulted from: i) the gross profit of US$69.3 million generated by the new San Julián mine (phase I); ii) the US$49.7 million estimated benefit of the increase in metal prices; iii) the positive effect of the increased volumes produced at Fresnillo estimated at US$13.9 million; iv) the US$11.4 million favourable effect of the Mexican peso/US dollar exchange rate devaluation; and v) other favourable impacts estimated at US$11.4 million. These factors were partly offset by: i) cost inflation estimated at US$21.9 million; ii) the expected lower ore grades at Saucito estimated at US$21.7 million; iii) the lower gold grades at Herradura, which had an estimated adverse impact of US$19.1 million; iv) the positive effect of the reversal of the write down of inventories at Soledad-Dipolos of US$14.5 million in 1H16; and v) the lower gold production at Noche Buena with an estimated impact of US$13.0 million.

On a per mine basis, Herradura and Saucito remain the major contributors to the Group's consolidated gross profit, whilst Ciénega and Noche Buena reflected marginal changes over the period. Fresnillo's gross profit increased 55.2%, reflecting the progress made to operate this mine at full capacity. The commencement of commercial production at San Julián (phase I) resulted in a 9.4% contribution to the consolidated gross profit.

Administrative expenses

Administrative expenses increased from US$26.5 million to US$33.1 million in 1H17. The 24.9% increase was primarily explained by an increase in services provided by third parties associated with telecommunications and additional administrative personnel hired to service a larger number of mines and projects. Additionally, increased administrative services provided by Servicios Industriales Peñoles, S.A.B de C.V. in relation to San Julián (phase I) also contributed to the increase in administrative expenses in 1H17.

Exploration expenses

Exploration expenses totalled US$64.2 million in 1H17, a 23.4% increase over the same period of 2016 due to intensified exploration activities at Herradura, San Julián and Cebollitas in the Ciénega district. An additional US$1.7 million was capitalised mainly related to exploration expenses at the Juanicipio project. Thus, risk capital invested in exploration totalled US$65.9 million and remains at US$160 million for the full year.

EBITDA

EBITDA and EBITDA Margin

Six months ended 30 June

(in millions of US$)

A key indicator of the Group's financial performance is EBITDA, which is calculated as gross profit plus depreciation, less administrative, selling and exploration expenses. This indicator increased from US$474.0 million in 1H16 to US$522.5 million in 1H17 as a result of the higher gross profit, which was partly offset by the higher administrative and exploration expenses. However, the EBITDA margin decreased slightly from 53.4% in 1H16 to 52.5% in 1H17.

Other income

During the period, US$23.4 million income was recognised in the income statement resulting from the sale of non-strategic mining claims to Argonaut Gold Inc around its Castillo mine. This compares favourably against the US$4.4 million expense recorded in 1H16, which included disposals of fixed assets and remediation works.

Silverstream revaluation effects

The Silverstream contract is accounted for as a derivative financial instrument carried at fair value. The total effect of the revaluation of the Silverstream contract recorded in 1H17 was a US$54.8 million gain, which was lower than the US$109.9 million gain registered in 1H16. US$32.1 million arose mainly as a result of the reclassification from silver resources to reserves at the Sabinas mine and a higher price of silver. A further US$22.8 million gain was generated by the unwinding of the discount and the difference between payments received during the 1H17 and estimated payments in the valuation model at 31 December 2016.

The cumulative non-cash revaluation gains that have been recognised in the income statement since 2008 increased to US$738.6 million in total; whilst cumulative cash received or receivable at the end of 1H17 from the Silverstream contract totalled US$582.6 million (which compares favourably to the upfront payment of US$350 million paid on 31 December 2007).

It is expected that the Group will record further unrealised gains or losses in the income statement in accordance with the cyclical behaviour of the silver price or changes in the assumptions used when valuing this contract. Further information related to the Silverstream contract is provided in the Balance Sheet section below and in notes 10 and 18 to the Interim Financial Statements.

Finance costs

Finance costs of US$17.0 million reflected the interest on the US$800 million principal amount of 5.5% Senior Notes, net of amounts capitalised totaling US$6.9 million in 1H17.

In addition, a US$35.2 million non-cash finance loss was generated by the mark-to-market time value of the outstanding gold hedging programme put in place to protect the investment made in the acquisition of the 44% stake of Newmont in Penmont in 2014. This compared favourably to the US$136.6 million non-cash finance loss generated in 1H16.

Foreign exchange

A foreign exchange gain of US$3.8 million was recorded in the income statement as a result of the realised transactions in the period and the positive effect of the 13.4% spot revaluation of the Mexican peso against the US dollar in the six months ended 30 June 2017 on the value of peso-denominated net monetary assets. This compared favourably against the US$8.6 million foreign exchange loss recognised in the first half of 2016.

The Group also enters into certain exchange rate derivative instruments as part of a programme to manage its exposure to foreign exchange risk associated with the purchase of equipment denominated in Euro (EUR), Swedish krona (SEK) and Canadian dollar (CAD). At the end of June, the total EUR, SEK and CAD outstanding net forward position was EUR 7.17 million, CAD 0.0 and SEK 8.23 million with maturity dates from September through December 2017. Volumes that expired during 1H17 were EUR 15.03 million with a weighted average strike of 1.1019 USD/EUR, CAD 0.48 million with a weighted average strike of 1.3385 CAD/USD and SEK 14.18 million with a weighted average strike of 8.9443 SEK/USD, which has generated an insignificant gain in the period.

Taxation

Income tax expense decreased by 15.7% from US$73.7 million in 1H16 to US$62.2 million in 1H17, despite the fact that profit before taxes increased by 51.8%. This was a result of the 13.4% revaluation of the Mexican peso in 1H17 versus the 9.9% devaluation in 1H16 on the tax value of assets and liabilities; together with the impact of the higher inflation rate (3.18% in 1H17 vs 0.16 in 1H16) on the inflationary uplift of the tax base of assets and liabilities.

The effective tax rate, excluding the special mining rights, was 16.0%, which was below the 30% statutory tax rate. This was mainly due to the revaluation of the Mexican peso against the US dollar, which impacted the carrying amount of assets and liabilities (denominated in US dollars) and their tax bases (denominated in Mexican pesos), together with the tax credit related to the special tax on diesel. Including the effect of the special mining rights, the effective tax rate was 20.0% in 1H17.

Profit for the period

Profit for the period was US$310.1 million, which represented an 87.2% increase half on half as a result of the factors discussed above.

Excluding the effects of the Silverstream valuation, profit for the period increased 206.3% to US$271.7 million in 1H17.

Cash Flow

A summary of the key items from the cash flow is set out below:

Cash Flow Key Items

Six months ended 30 June

(in millions of US$)

*As disclosed in the Consolidated Cash Flow Statement, cash and cash equivalents at 30 June 2017 totalled US$394.9 million and short-term investments held in fixed-term bank deposits amounted to US$490.0 million. Cash and cash equivalents at 30 June 2016 totalled US$581.2 million and short-term investments held in fixed-term bank deposits amounted to US$120.0 million.

In 1H17, cash generated by operations before changes in working capital totalled US$540.3 million, a 13.7% increase due to higher profits generated. Further, working capital decreased by US$25.8 million as a result of the net impact of the following factors:

· A US$6.0 million decrease in trade and other receivables

· A US$14.1million decrease in ore inventories on the leaching pads at Herradura

· A US$0.7 million decrease in prepayments and other assets

· An increase in trade and other payables of US$4.9 million

Taxes and employee profit sharing paid of US$211.9 million increased by 212.2% over 1H16 due to higher profits generated.

As a result of the above factors, net cash from operating activities decreased by 13.2% to US$354.2 million.

The Group also received proceeds of US$23.0 million from the Silverstream Contract.

The Group purchased property plant and equipment for a total of US$264.3 million, a 33.0% increase over 1H16. The Group expects capital expenditures of around US$700 million for the full year. Capital expenditures for 1H17 are further described below:

Dividends paid to shareholders in 1H17 totalled US$158.4 million as a result of the final dividend of 21.5 US cents per share paid in May 2017. Other uses of funds included the US$8.5 million net interest paid in the first half of 2016.

The sources and uses of funds described above resulted in a net decrease of US$27.1 million in cash, cash equivalents and short term funds, which combined with the US$912.0 million balance at the beginning of the year, resulted in cash, cash equivalents and short term funds of US$884.9 million as at 30 June 2017.

Balance Sheet

Fresnillo plc continued to maintain a solid financial position with short term funds of US$884.9 million as of 30 June 2017. This represented a 3.0% decrease versus December 2016 but a 26.2% increase compared to the short term funds of US$701.2 million as of 30 June 2016.

Trade and other receivables (including income tax recoverable) increased from US$286.7 million as of 31 December 2016 to US$369.4 million as at 30 June 2017 mainly due to the increase in recoverable taxes in 1H17 and higher volumes sold at higher prices, which increased accounts receivables.

Inventories decreased 5.1% over the 2016 year-end figure to US$262.7 million, mainly as a result of the decrease in gold inventories on the leaching pads of Herradura.

The change in the value of the Silverstream derivative from US$467.5 million at the beginning of the year to US$500.2 million as of 30 June 2017 reflects proceeds of US$22.1 million, (US$17.0 million in cash generated in respect of the period and US$5.1 million receivable) and the revaluation effects of US$54.8 million in the Group's income statement.

The net book value of property, plant and equipment increased by 5.1% to US$2,290.8 million at 30 June 2017 (US$2,180.2 at 31 December 2016), reflecting the larger asset base following the commissioning of San Julián (phase I).

Fresnillo plc's total equity for 1H17 was US$2,891.4 million, an increase of 6.4% when compared to the figure at the beginning of the year, which reflected retained earnings from 2016.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out above in the Operational Review, with further detail in the Annual Report 2016. The financial position of the Group, its cash flows and liquidity position are described in the Financial Review. In addition, the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk were set out in the Annual Report 2016. Details of its financial instruments and hedging activities as at 30 June 2017 are set out in note 19 to the interim report.

In making their assessment of the Group's ability to manage its future cash requirements, the Directors have considered the Company and Group budgets and the cash flow forecasts for the period to 31 December 2018 as at July 2017. In addition, they reviewed a more conservative cash flow scenario with silver and gold prices reduced below current expectations, whilst maintaining current budgeted expenditure, which resulted in our current cash balances reducing over time to a more than adequate margin of liquidity towards the end of 2018.

After reviewing all of the above considerations, the Directors have a reasonable expectation that management has sufficient flexibility in potential adverse circumstances to maintain adequate resources to continue in operational existence for the foreseeable future. The Directors, therefore, continue to adopt the going concern basis of accounting in preparing these interim financial statements.

Dividends

The Board of Directors has declared an interim dividend of 10.6 US cents per share totalling US$78.1 million which will be paid on 8 September 2017 to shareholders on the register on 11 August 2017. This decision was made after a comprehensive review of the Group's financial situation, assuring that the Group is well placed to meet its current and future financial requirements, including its development and exploration projects.

Fresnillo's existing dividend policy, which takes into account the profitability of the business and underlying earnings of the Group, as well as its capital requirements and cash flows whilst maintaining an appropriate level of dividend cover, remains in place. To reiterate the policy, a total dividend of between 33 and 50 percent of profit after tax is paid out each year in the approximate proportion of one-third to be paid as an interim dividend, two-thirds to be paid as a final dividend.

The interim dividend will be paid in UK pounds sterling to shareholders, unless a shareholder elects to receive dividends in US dollars. The interim dividend will be paid in UK pounds sterling with the dividend being converted into UK pounds sterling on or around 15 August 2017.

Risks and uncertainties

In the first half of 2017, the Board and the Executive Committee continued to oversee Fresnillo plc's principal risks as part of our risk management framework as we work towards achieving our strategic objectives.

Fresnillo plc currently monitors eleven principal risks which have not changed from those set out in the Strategic Report of the Annual Report for the year ended 31 December 2016 (published in April 2017).

The principal risks are shown below:

· Impact of global macroeconomic developments (silver and gold prices)

· Access to land

· Potential actions by the Government (e.g. taxes, more stringent regulations, permits)

· Security

· Public perception against mining

· Safety

· Projects (performance risk)

· Union relations

· Exploration

· Human Resources

· Environmental incidents

Directors

The names and functions of the current directors and senior management team of Fresnillo plc are shown on the Group's website: www.fresnilloplc.com

Statement of directors' responsibilities

The Directors of the Company hereby confirm that to the best of their knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and profit and loss account of the Fresnillo Group as required by DTR 4.2.4; and

(b) the interim management report includes a fair review of the information required by DTR 4.2.7 (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principle risks and uncertainties for the remaining six months of the year) and DTR 4.2.8 (being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period and changes since the last annual report).

On behalf of the board of directors of Fresnillo plc.

Octavio Alvídrez

Chief Executive Officer

INDEPENDENT REVIEW REPORT TO FRESNILLO PLC

Introduction

We have been engaged by the Company to review the interim condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the interim consolidated income statement, the interim consolidated statement of comprehensive income, the interim consolidated balance sheet, the interim consolidated cash flow statement, the interim consolidated statement of changes in equity and the related Notes 1 to 19. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim condensed consolidated set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 2a, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The interim condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the interim condensed consolidated set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

31 July 2017

Interim Consolidated Income Statement

Interim Consolidated Statement of Comprehensive Income

Interim Consolidated Balance Sheet