Good morning everyone. Thank you for joining us today. My name is Octavio Alvídrez, CEO of Fresnillo, and here with me in London we have Mario Arreguín, CFO, Tomás Iturriaga, COO from the Central Operations, and Daniel Diez, Chief Operating Officer of the Northern Region. Welcome to our half year results presentation. As always, I would like to point out our disclaimer before I move quickly to see the agenda we have for the day. I will take you through the key highlights and address some of our key recent HSCCR initiatives. Tomás and Daniel will then provide some of the operational updates on their respective regions and also they will let us know some of that about the development projects they coordinate. Mario will provide a financial update and some more detail into the decision to agree a buyback of the Silver Stream contract with Peñoles.
Finally, I will then conclude and provide some comments on the outlook. We then look forward to a Q&A session in Belgium. Proposition. You will be familiar with our investment case and I believe it remains compelling and consistent. First, let me make a few introductory remarks about our results. I'm pleased with the performance of our operations. We have now delivered consistently for over two years after a period of challenge and dealt with a number of factors that have impacted our business before. I believe this shows how we have established our operations and are now in a strong position to capitalize on further growth opportunities with their legacy operations all in a much better place. Further, we're also making progress on our development pipeline.
Of course, these major projects take time and it is vital we de-risk them and ensure we have a very detailed plan in place as well as strong relations with all local communities. I would make the point that we are very focused on costs and you will see this is reflected in our numbers. This in turn has driven a truly outstanding financial performance with lower costs and solid production well timed to benefit from higher prices of silver and gold. Mainly, both gross profit and EBITDA have exceeded $1 billion in the period. I would also like to highlight the constructive dialogue we have been having with the new administration in Mexico, with the sector in general making positive steps forward.
We achieved and were able to obtain some of the permits that were very pressing in some of the current operations, specifically in Fresnillo, with the permits of Fátima Norte being released some months ago on the investment proposition. We are still the largest producer of silver in the world and Mexico's leading gold producer. We benefit from a large portfolio of high quality assets with over 2.2 billion ounces of silver resources and 38.5 million ounces of gold resources. We have strong EBITDA margins, significantly improved versus the prior year, and low costs and remain very focused on running our operations efficiently. This approach has seen us generate significant free cash flow of over $1 billion alongside very strong earnings per share, which has enabled us to reward our shareholders with strong returns in the form of dividends. Couple of words on the silver and gold market.
We have all seen increased demand not just from the traditional market drivers such as jewelry, but silver in particular used in various industries including electronics and, very importantly, solar panels, which have very much made this demand grow in the last years. The other part also in both metals is the supply constraint. We have not seen a large supply, nor in silver nor in gold, in the last eight to ten years, and in silver specifically the market running a deficit for the last five years. In short, we are confident of the outlook for silver and gold metal prices being supported by these factors. HSCCR for Safety. Safety is the heart of everything we do.
Overall, our safety performance has improved largely in part due to our I Care We Care campaign and philosophy, which is rolled out across our portfolio and focuses on installing a safety culture throughout our organization. Though overall safety performance is trending in the right direction, as you can see, we are sad to report we have experienced two fatalities over the last few months, one employee and one external contractor worker, and this is a reminder that we need to do more and redo our efforts across all of our operations. On the environment, our work on improving our carbon emission performance is also ongoing. We work towards decarbonization of our operations, improving water recycling rates, and upgrading our mining fleets. We achieved 80% renewable energy consumption in the period, a new record for the business.
Let's remind that 75% remains our objective and with this 87% whenever we bring our projects or development projects on operations, we will go back to those 75% as objective to renewable energy consumption. I was also pleased to open the per annual water in the Zacatecas region in February to improve water supply in Fresnillo and complement what we've done as we have three sewage water treatment plants, but this will benefit approximately 32,000 residents in the Fresnillo area with potable drinkable water. This project was a collaboration with the Zacatecas State government and Minera Saucito, highlighting a public private partnership to address water scarcity in the area. Our community relations efforts have really progressed. These initiatives are particularly important as we move forward on our new development projects where considerable very positive work is being done with the local communities.
In particular, I would highlight local health campaigns we have developed in conjunction with the UNAM, which is the National University in Mexico foundation, and the continued success of our scholarship program. As I have highlighted before, our relationship with our communities is central to our license to operate and we continue to make a huge contribution to our communities both in terms of investments, employment, and the tax we pay. Finally, I should also add here we are developing a constructive and positive relationship with the new administration on this wealth for the future and the development of our projects.
Some of the operating highlights for the period we have already disclosed: silver and gold production were in line with guidance with very strong gold performance driven by Herradura and silver impacted mainly by the cessation of mining activities, San Julián Disseminated Ore Body, and also the buyback of the Silver Stream agreement from Peñoles. We remain very focused on cost and this is reflected in our operating margins. As you will see, those have increased from past periods. In today's announcement, we have also confirmed the decision to agree a buyback of the Silver Stream contract with Peñoles and Mario Arreguín, our CFO, will provide a detailed review of the strategic and financial rationale for this, but overall we are confident it is the right outcome for our shareholders given the Silver Stream buyback and the continued performance of Herradura.
We are today making some adjustments to our full year guidance. Attributable silver production guidance for 2025 has been adjusted lower for the Silver Stream buyback with no further Silver Stream contribution from second half 2025 onwards. However, on a silver-equivalent ounces basis there has been no change to the guidance because of the stronger production of gold in the case of Herradura. Some of the financial highlights, as I've said in my introduction, this is a very strong set of numbers where we have capitalized on higher metal prices but also kept a strict control over cost, as you can see from our margin performance. As a result, both EBITDA and gross profit have exceeded $1 billion. We are generating significant cash, which also translates to another strong dividend in line with our policy of over $150 million.
I will now turn to hand over the microphones to Tomás and Daniel to provide some operating and, as I mentioned, some update on the development projects as well.
Thank you, Octavio, and good morning, everyone. Good to see you again here. Let's start with some comments on Fresnillo, so good results overall. We continue working in our operational discipline and geological controls, trying to improve the silver grade, and we have made some good progress there. Our grade is up to 170 grams per ton compared to 150 grams per ton in the same period last year. That's a 12% increase on the grade. We'll continue working towards that improvement. We have been showing good progress. The challenge now at Fresnillo moved to the tons of the volume processed, where we saw a substantial decrease compared to the same period or Q1 this year. The main factor there is unstable access to one of the areas that we had in the sequence for this year, the San Rafael area.
We needed to take out completely out of the mine plan those tons, some 60,000 tons in that area alone. That's the main impact, along with lower volumes from the cotton film stopes and having to do with.
The. Geometry of the veins. Narrower veins or shorter stopes or a combination of both. We are starting already a new access to the San Rafael area. We are doing different things to improve our cycle times. That way we can increase the volumes coming out of our current field stopes. None of these measures will have an immediate impact. We expect a similar second half of the year in terms of volumes, maybe a bit better, but not substantially better. However, for Nicci we should be okay with the back on sequence and we should have recovered that area mine. The development is at good levels and as you can see we're putting the meters of development that we need in the mine. The gold and silver grades in the guidance are confirmed. Will be there as guidance. Moving to Saucito, good performance in terms of the tons processed.
Silver, lead, and zinc grades. Gold is a bit lower, but it was expected based on the sequence and the zones of the mine that we have in the sequence for this year. It's not a surprise, that's expected. Development is a bit below what we had in plans. Basically, two conditions there impacting the development. One, the ground conditions in south. We know the ground in Saucito, the ground quality is bad, is challenging. That is combined with a low availability of bolting and scaling equipment. That's what has impacted our development. We have added more equipment, bolters and scalers overall and with the contractors. We expect to get back on track with development for the second half of the year. The herrillas shaft sinking continues progressing well. The sinking itself is complete.
We are now working on the installation of the infrastructure required for that to become operational, that being crusher, screening, pumping system, and all that. We are also preparing for the interconnection of the two sections of HF first quarter next year. Silver and gold grade guidance is confirmed for Saucito as well. At Juanicipio, all good in the performance of the operation. Tons rates, everything is as expected. We see the silver grade down, but that was expected. We know as we mine down, the silver grade is going to be lower. Still, it is within the plan and the expectations. All good in Juanicipio, the conveyor belt project is progressing.
Relatively well. Some delays in the manufacturing of the components. The commissioning of the system is slipping a little bit to Q1, Q2 next year. We are still analyzing the final date for commissioning and how to improve that delay that we are facing. Tailings dam number two construction is complete and the dam is fully operational. We have now almost nine years' worth of capacity of the tailings dam. The gold and silver grade also for the full year are within the guided range at Juanicipio. Moving to the projects, the Orisyvo project, good progress during the first half of the year. We completed the pre-feasibility A level study, so that's now fully completed. Also, all the engineering required for permitting is complete. We are working on the integration of the environmental impact assessment to be submitted for approval late this year. That's very good progress for Orisyvo.
In the meantime, permitting being the critical part of the project. In the meantime we'll do. A third. Party review of the project looking to de-risk and optimize the economics and the design and the engineering of the project. That's the progress there. In Guanajuato, the Guanajuato Sur project, which is our main focus in that area by now, very good progress also in terms of our drilling campaign, 46,000 m of drilling in the first half of the year. We are expecting good results again in terms of the resource increase at the end of the year. Not only are we putting the meters on the drilling, but we are getting good results out of it. The scoping level study is well advanced and expected to be completed by early Q4 this year. All in all, good stable quarter of operations in the district, the central region, and good progress in the Orisyvo and Guanajuato projects. With that, I'll pass it on to Daniel. Thank you.
Good morning everybody. On the results of the Northern Region. I'm happy to present what was a very solid first semester for this year starting with Herradura. As you can see, we had a very strong performance in gold production, with a 39% increase in production year on year compared to the previous one. In terms of cost, also a very, very positive development in terms of consolidating everything we've been working for for some months already. The operational exitus program is delivering results above what we initially expected in terms of productivity and cost control. We finalized the first stage of optimization during this year and we have programmed a second stage in 2026. We made a decision to make a pause, consolidate what we're doing right now and start a new phase in the upcoming year.
The long-term strategic assessment of what we have been describing as the Herradura district vision is progressing as expected. Very good developments on that end in terms of the potential for growth coming forward. We are evaluating all the different optimization alternatives that we have in the district. We still aim to complete the first phase of this district view by the end of 2025. One of the components of this district view, that is the shorter-term bias underground mine, is progressing as expected. We're finalizing the detailed engineering as we speak and the production plan. We still have in our schedule the plan to start operations by the first half of 2027. We're confident that we are on a good track for that and that we'll add something between 60,000 and 100,000 additional ounces of gold production for Herradura district, which is very positive.
Another one of the levers that we have for optimizing the Herradura operation, that is the test work for the sulfide treatment, started with a slight delay this year. We expected to have results by the second quarter. However, right now we already started with the test work program and we expect results before the end of the year. In terms of cost performance, as you can see, all-in sustaining costs below $1,400 and cash costs at $1,150 levels. It's very, very competitive. Results are above what we expected and we're confident that this is here to stay and consolidate Herradura as one of our cornerstone assets generating more than $400 million of free cash flow during the first semester, which is very, very positive for the company. In the case of Cienega. We started with some issues this year.
In particular, the message is these issues are specific to one sector of the mine in terms of processing and the metallurgy of that sector. That is going to remain during the rest of the year. A bit softer production, but that is not going to be a long term issue. The view of having Cienega as a sustainable operation is still there with very good results in terms of exploration as well. Cost controls, measures, and total expenditure and productivities are in line with our expectations. What we see right now in terms of higher all-in and cash cost and lower productions is something we are reversing during the second half of the year. Division remains. We're starting the production from the stopes in Victoria complex.
That is the new high grade gold area that we discovered during this year and that we expect is going to become a very positive 2026 for Cienega in terms of production. All in all, some issues particular to this year, but it doesn't change the view that we have on the operation and its sustainability in the medium to long term. San Julián, another success story. The performance in both gold and silver production during the first half of the year exceeded both our internal targets, our budget, and also the first half of the previous year. Even operating with just one plant, as we discussed before, which is very positive. The drivers for this were the plant optimization that we performed during 2024. Dilution management has been a focus during this year and a strict cost control allowed us to now confirm what was the challenge last year.
That is having a sustainable operation in the long run, operating with just one of the plants. You can see the results in terms of cost. It's pretty much in line with the cost of the previous year, even when we don't have the DOV operating below $17 per ounce of equivalent silver, which is very competitive. That confirms the view that we have for San Julián in the long run. Good exploration results, good investment in terms of exploration to extend the mine life, and significant cash flow and operating results. All in all, good news. To finalize in the area of our greenfield projects, the Northern region, we have a summary of Rodeo and Tajitos. Both very similar in terms of the challenges. Relatively simple projects, but low grade.
When we made a review of the status of the projects, we made a decision in both of them in terms of, one, de-risking the projects before moving ahead, and second, focusing on extending the resource base and de-risking mostly around metallurgy. Metallurgy is going to be the key in both of these projects. In the case of Rodeo, we started a drilling program this year. It's going very well. There was a slight delay at the beginning of the year to start, but right now there is very good progress in the exploration results and getting the samples that we need for the metallurgical test work. We expect the campaign to finalize in Q4 this year, then update the resource model, optimize the project, and have a revised PEA by Q2 2026. That is our timeline right now.
After that, that's going to be the milestone for making decisions moving forward. In the case of Tajitos, similar, we are exploring not the main ore body. We have very good potential in a vein system for high-grade gold in the Tajitos area, which would be a complement for the project. In parallel, we're working on metallurgy for de-risking the main ore body. The test work is ongoing, and we expect a revised PEA by Q1 2026. Handing over to you, Mario.
Thank you very much. Good morning everyone. Can you hear me?
Excellent.
After nearly eight months of discussions and very deep analysis and evaluation of several alternatives, we came to the conclusion that the best alternative for Fresnillo was to sell back to Peñoles the Silver Stream agreement. For that, let me just give you a bit of background and I'll just go very quickly through this slide. Peñoles has notified Fresnillo of operational and financial difficulties impacting silver production and the long-term viability of the mine. Fresnillo subsequently reported a revaluation loss relating to the agreement of $182.3 million in its 2024 accounts, valuing the agreement back then at $258 million before taxes. More recently, though, Fresnillo received an updated reserve report from Peñoles for the Sabinas mine certified independently by SRK Consulting, which showed a significant reduction in reserves, more than 15%.
I would say definitely this was the main reason behind the lower value of the mine and hence of the Silver Stream. A revised mine plan and sequencing program were drawn out with the validation from SRK Consulting, which materially impacted future production and free cash flow projections. Fresnillo, together with Peñoles, determined the new value of the Sabinas mine to be between $47 million and $50 million. Fresnillo has agreed terms for Peñoles to buy back the Silver Stream for $40 million. This creates a non-cash $133 million loss after tax and net of the period's profit amortization in the first half of the 2025 income statement. The cash effect will be an inflow of $40 million in the second half of 2025.
The independent directors of Fresnillo have received financial advice from Bank of America Securities in relation to the consideration payable by Peñoles to Fresnillo to buy back the Silver Stream agreement. The independent directors believe the valuation offered by the buyback of the Silver Stream agreement is fair and in the best interest of Fresnillo shareholders given the considerable challenges identified. Over the lifetime of the agreement, nearly 18 years since the IPO, Peñoles has paid Fresnillo approximately $882 million and Fresnillo has received approximately 52 million ounces of silver. We'll be happy to answer any questions or doubts that you might have regarding this buyback during the Q&A. For the time being, if you don't mind, I would like to move on to the financial statements. Okay, this slide here shows basically the income statement for the first half and we compare that to the first half of 2024.
As you can see from all the lines outlined in yellow which show the different profit levels, it was a very, very good financial result. In terms of gross profit, we are 160% above last year. In terms of operating profit, we're 266% above last year. In terms of profit for the period, almost 300% above considering the hit from the Silver Stream contract. In terms of EBITDA, we basically doubled last year's number. Going back to gross profit, as you can see, compared to last year, we were $630 million above. If you move up that same column, you will see that there were basically two main reasons. One was the fact that we had a very important increase in revenues, $420 million.
That combined with the lower cost of production, nearly $170 million or 20% lower, the combination of those two were basically the two main reasons behind the increase in gross profit. One of the questions will be how much of that adjusted increase in adjusted revenue was due to prices and how much of that was due to volume. For that we have to share with you on the following page, on page 25. As you can see clearly, basically the main reason, or the only reason for the increase in the revenues line was the increase in price of both gold and silver. In the case of gold, we saw a 42% increase in the price of gold coming from $2,235 per ounce to $3,169. In the case of silver, we saw a 25% increase increasing from $27- $33.80 per ounce.
As you can see, there was a very favorable effect. In the case of gold, $262 million. In the case of silver, $175 million. With regards to volume, you can clearly see that the negative effect which was expected in terms of silver production, which was 11% lower than last year, as a matter of fact, we were pretty much in line with budget. That decrease was expected. That had a negative impact of $121 million. Whereas in the case of gold, where we had an increase of 15.6% compared to last year, and we were quite above what we had originally budgeted, almost 22% above budget, that had a positive effect of $117 million, which pretty much offset the negative impact of the lower silver. If we can go back to the income statement, please. The other important factor was the reduction in adjusted production costs.
For that I would like to use the. We call our rainbow, which is on page 26. Again, on the right hand side you can see the green bar, which represents the reduction of $170 million. By far the most important reason was, of course, the devaluation of the Mexican peso during the first half of the year. Here we're talking about the average exchange rate, which for the first half of 2025 was nearly 20 pesos per dollar, 19.98 to be exact, which compared to 17.10 per dollar, which was the average exchange rate for the first half in 2024. Actually, 17.10 was the lowest we've seen in the last five years. That resulted in a devaluation of almost 17%, which had a positive impact, as you can see here, almost $86 million, or 50% of the total reduction in adjusted production costs.
If you look at column number one here, we talk about cost inflation, cost inflation being the increase or the average increase in the unit price of our main index. Happy to report that we see inflation pretty much under control now. It was only 2.3%, excluding the effect of the exchange rate, and that had a negative impact of $15 million on the operating side. Of course, if you look at column number four, as you know, we had the closing of the San Julián disseminated ore body mine, so we're no longer incurring those costs. That implied a $24 million reduction. Also on number five, we had increases and decreases of production in several of our mines, but the net result was a decrease in terms of volume processed at some of our mines. That had an impact of about $31 million in reduction of our cost.
Of course, column number four and five will translate into lower income when we look at the gross profit graphs, which I will show you in just a minute. I guess the main message here from this graph, at least from the operational point of view, is outlined in bar number three where you see the result of the cost reduction efforts and efficiency programs that we have put in place, which resulted in a benefit of $23.3 million. To summarize the main reasons behind the increase in the gross profit, if we can move please to the gross profit rainbow again, on the right hand side you can see the $630 million increase represented by that rebar. Clearly the most important factor again were the prices.
You can see that effect on column number one, higher silver and gold prices represented almost 70% of the total increase in gross profit on the operating side. On the positive side, we saw higher ore grades and higher recoveries, which had a positive impact of $107 million. If you look at the adverse side, you will see on the operating side that on column number 10, the fact that we closed down San Julián Dov well represented only one lesser profits.
And. If you look at the variation in the change of inventories, which is pretty much an accounting phenomenon that occurred between one semester and the other, that had a negative impact of $49 million. We already spoke about the effect of the exchange rate was positive. As column number three, we also saw lower depreciations, $62 million. That's basically related to the closing of the Sankuyan DOP mine. We already spoke about the efficiencies which had a positive effect of $23 million. Fortunately, we've seen lower treatment and refining charges in the last two or three years. That had also a positive effect of $25 million. Overall, I think that gives you a good idea of what was behind the variation in gross profit. If we move back to the income statement very briefly, if you look at the operating profit again, it was $625.6 million above last year.
Mainly all of that came from the increase in gross profit that I just explained to you. If you look at the finance income or expense in this case line in 2025, we are recognizing a loss of almost $180 million. That's basically due to the Silver Stream effect. If you look at the income tax expense, you will see that we only had an effective tax rate of 18.5% compared to the statutory tax rate of 30%, much lower. That was due precisely to the exchange rate and the impact that that has on the valuation of assets which are valued and accounted for tax terms in pesos. The spot exchange rate at the end of December was 20.3 and at the end of June 18.9 pesos per dollar. That was the main reason behind the lower effective tax rate.
I think we can move on to the cash flow. If you look at the first column, bottom line, you will see that we closed the year with a cash cash equivalence of almost $1.8 billion. If you look at our financial statements, you will see that there's a little difference between what we're showing you here and the $1.5 billion that actually are shown in the financial statements. The difference of $277 million is basically that we had those $277 million in PAC time deposits which matured three months after the closing of June. For me, that's pretty much cash. I thought, you know, that a better number to show you is $1.8 billion.
Although I have to admit that if you are very strict and consider time deposits in AAA bank with maturities of around three to four months, that's not being cash, then it would be $1.5 billion. He sells your dollars in dollars. Everything that we have, basically we do have a small balance in pesos to cover certain expenses, but we try to keep our cash in dollars. The main generator of cash, of course, was the cash generated by operations, which is the very first line, the top $1.1 billion, which nearly doubled what we generated last year. Also, you know, working capital. There was a reduction in working capital, so that generated $191 million of cash. Another source of cash was, of course, the shares that we used to own from MAG. As you know, MAG was acquired by Pan American.
We had approximately 9.2% of the total outstanding MAG shares. We thought it would be a very good opportunity to sell a large volume. When that was announced, by the end of June, we had sold approximately 80% of the total holdings that we had. As we speak, we have sold 100%. We don't own any more MAG shares. That was an interesting source of cash, $150 million for the first half of the year. In terms of uses, of course, one of the main uses, as you can see, there was this dividend pay, May $500 million income tax. Look at that. That was $255 million. That was mainly provisional tax payments. Remember in Mexico we pay provisional tax on a monthly basis based on the revenue.
You simply apply a factor on that and in March of the following year you settle those provisional payments versus your income tax return, and if you have a favorable difference then you get money back. If not, you have to pay. So far we've paid $124 million in provisional taxes, we've paid $63 million in mining rights, and we've paid $12 million in profit sharing, which are the three most important elements of that line. In terms of CapEx, we have invested around $158 million during the first semester, and I think those are the most important items in cash flow.
Matter of. fact, I think I'm done, so happy to answer any questions that we might have.
Have in the Q&A session.
In the Q&A session, obviously.
Very quickly, I mean thank you, Mario. By the way.
Looking ahead for the rest of the year, we mentioned that we have adjusted very slightly the guidance for the year in terms of silver according to what we were expecting to receive in the second half of the Silver Stream, which is no longer the Fresnillo side, and also in 2026 and 2027. In 2025, as we mentioned, we higher our guidance for gold in such a way that silver lower gold, I mean equivalent silver ounces, remains very much the same. The rest of the expected production in 2026 and 2027 for gold and also lead and zinc, those remain the same. For CapEx, we are also rationalizing the CapEx for 2025. We do this exercise every year to see if we can lower the expected CapEx number for the year.
In 2025, we are reflecting some delays in terms of lower development at Saucito mainly, and also some of the Robbins ventilation raise boring in Saucito as well. We are experiencing some small delays in the installation of the conveyor belt at Juanicipio, so part of that is reflected in a lower CapEx number in 2025, 2026, and 2027 as we had mentioned before. A quick look on the development projects, how we believe we can bring those on stream, that is a challenge on the four development projects. Of course, we continue to advance those as described by Tomás and Daniel, but got very focused on the brownfield projects, which are less of a challenge. We continue to advance on Valles on the ground, which is in the vicinity of the underground portion of the Herradura district.
That would give us ounces with no larger investment, so we are focusing on those. Further ahead, in Herradura, we have potential underground that we will continue to see and develop in the coming years, but very focused on this brownfield production at the Herradura area. All in all, just to conclude, safety as mentioned, we need to redouble our efforts across all of our operations. The trends are becoming positive. We still work and see our operation free of fatality, something that the whole organization is very focused to achieve. Outstanding first half performance demonstrating the operational success, and these coupled with higher metal prices, we've seen the kind of free cash flow that our operations, our sizable production brings.
Focus on cost and productivity, so those quality ounces we will continue to make every effort not only to control but also to decrease cost across all of our operations. Strong return for our shareholders through increased dividends and advancing our exploration and continued investment to progress our pipeline. With that, we can turn into Q and A. Jason.
Thanks a. lot for the presentation and congrats on the great result.
Thank you.
Couple quick ones. Projects. You seem to have a lot of. Projects that are coming to a head in 2026 and 2027, how are you thinking about the ability to fund those? Beyond that, do you feel like the organization has enough bandwidth technically to execute this many projects?
Do you want to mention something on the projects that you have, and then I'll compliment the answer?
Yeah, I think we have, technically, we complement what we have in house with. Qualified. Terms to do our projects. For instance, in Guanajuato Sur, we have within Saucito project complementing with our own technical team, or we have both two terms there. So. What we do mainly is use our technical team to do the reviews, internal reviews to guide. I feel we are well in. That setting for those two projects.
Neil, what do you want to add to that?
No, I share the same. I think our pipeline is moving forward. At some point, we will require to strengthen our organization. That's coming in a few years. What we need right now, I think we have solid resources, and with a good backup of consulting companies, we'll be able to deliver.
Yeah, we mentioned before that we are strengthening our organization. We put in place a Vice President.
So. Technical Vice President with a team on its own. We are better exchanging the process of planning with this Technical Vice President and its team working along in a better level with the operational teams in place for the brownfield project. That is the one that is coming first in Herradura. I mean also we named an additional person in charge of the operations and also developing the greenfield project at badges and further definitions in terms of plans to really match of course what we need in the projects in order to develop efficiency.
Just a follow up if I could. The dividend, I mean obviously very, very strong cash flow. I had a couple of investors commenting that it seemed like the dividend was a little bit light, like it could have been maybe a little higher. Some people wondered if you were building a war chest to do some inorganic growth. How do you think about that?
Of course, we saw this cash generation because of what we mentioned. I mean, a widening of margins, focusing on cost, enjoying high metal prices. You see the effect of really a sizable production there. The dividend that we declare this period goes along the lines of our normal dividend policy, which on a yearly basis would be expected 50% of the net profit for the year. This is just the usual dividend policy in terms of building it and cash balance. I mean, this is what we have. As you mentioned, we have enough development projects ahead of us that will require substantial cash as well. I mean, Orisyvo with all of the challenges in the coming years. We are trying to optimize the CapEx number as Tomás mentioned. I mean, we concluded the pre-feasibility that shows a CapEx number that probably is a bit on the higher side.
Right now we are trying to optimize that. What I mean, that would require substantial amount of cash. Rodeo and Tajitos at a lower side of cash needs. Guanajuato probably something, a project that we are trying to bring at a better pace, and also because of the depth of the vein systems, I mean, we require quite a fair amount of lighting works, development ramps, a shaft and everything, bringing the cash needs up for Guanajuato Sur. I think we will continue to do the same. I mean, explore, finding new projects, develop and construct those projects, and those are a good use of cash. Thank you.
Yeah.
Hi Patrick Jones, JPMorgan . Just a question on a couple questions on the Herradura side. Could you just comment a little bit more as to how you see sort of the long-term production profile there with incorporating the Bias underground? Should we be thinking about that as sort of a 500,000 ounce mine out to middle of the next decade? Just on the CapEx side of that, can you give a bit of color as to how much that is specifically and if that's within the 2026-2027 guidance as well?
We're trying to be cautious about providing a forecast given that we are in the middle of the optimization process. Our first goal, I would say, is to at least sustain levels of production that we have right now because the natural trend of the open pit is decreasing in time with all the projects that we have in there. Our initial goal is to sustain levels similar to what we have right now in the long run, 10, 15 years from now. However, we know we have the potential to go to levels like you mentioned, but again we want to be cautious about forecasting until we finish all the engineering stuff we're doing.
Thank you.
Hi, Dan Major from UBS . First question just on the financials. You had a good cash flow performance this period. Just like quite a lot of your peers in the sector, you're booking a build in tax payables. Can you provide us any guidance if prices stayed at this level, kind of how much you would continue to accrue in the second half and then what the catch up payment would be in the first half of 2025 as a result of the lift in profitability?
Yes, we've done our six plus six, that's what we call it, forecast for the year end, and we're expecting to close somewhere around $2.3 billion in our cash balance after considering taxes, everything. That will put us in a very, very strong position, I believe.
Maybe to answer it slightly different, how much tax would you owe in 2027 with respect to 2026 in terms of accrual of tax payables? I think you build $100 million this half in payables and that will continue to build, I would guess, if prices stay high. Is that the right way of thinking? About it or not?
As I was explaining, we are paying what we call provisional tax payments on a monthly basis. I believe that year end we will be very close to the actual number that we get in March of next year when we do our tax return calculations. We might even end up having paid more provisional tax payments on a monthly basis than what we actually will accrue when we do our detailed calculations in March.
Okay, that's clear, thanks. Just a question on the follow-up question on the projects. I mean your slide 35 has been in the deck for a long time, and the projects have looked quite similar, and they keep moving further to the right. It feels you're putting a little bit m ore.
Detail on the timelines to Peñas in 2026 and the underground expected in Herradura. Have you got more confidence in the pipeline now than you have in the last couple of years? Just to follow up on Patrick's question, just to be clear, your guidance and gold for 2027, does that include the contribution from the underground Herradura?
Yeah, I mean we continue to be positive on the development for development projects. However, challenges remain as I mentioned. I mean we see this federal administration being more positive on mining and trying to help and support if we need something in order to develop this project. However, some challenges remain. Rodeo still, Daniel mentioned, I mean we need to finalize our exploration, consolidate the resources there, and then do the pre-feasibility and feasibility. Orisyvo, as I mentioned, I mean is a project that goes from pre-feasibility A to pre-feasibility B. However, I mean the size of the infrastructure we need to put in place to access this project, I mean the indigenous consultation and everything, is a big challenge there. Right now we are optimizing or rationalizing that CapEx number that was out of the pre-feasibility process.
The key, Tajitos, also some challenges, I mean you need to change in case we grow the resources positively with exploration, we need to change some of the infrastructure that we have there. Talking about roads, state road that is going through the project, and Guanajuato is the one that we are trying to speed up. Also, as I mentioned, the challenge there is to access the veins at the level in which we have the economic generalization for Guanajuato. Yes, you're right. I mean seems like the development pipeline is still not moving to the pace that we would like, and that's why also the focus is on the brownfield projects, and Bayes is the one that we have at the site, and some portion of Bayes production is reflected in 2027. Thank you.
To clarify, it's not a full year of production. It's our current schedule. It's going to be around 50% of a full year production, what we have in for that year.
I'm assuming the capital expenditure is also reflected in 2026, 2027, even if you haven't defined it exactly. Okay, thanks a lot.
Hi there, excuse me, it's Amos Fletcher from Barclays . I had a couple of questions. On the financial side, big working capital release in H1. Can you give us any guidance for what that might be in H2? Can I ask on the CapEx side, how much of your CapEx is denominated in Mexican peso versus US d ollar?
In terms of working capital for the second half, most of the increase in working capital that I just showed you was due to a reduction in accounts receivables from Peñoles. I don't think that will repeat itself in the second half. I believe it would be pretty even during the second half; we won't see a reduction or any increase either. In terms of CapEx, that was your second question.
How much in the U.S. CapEx?
In terms of capital expenditure, I would say all the part that is related to development, which is basically contractors. In Mexico, I would say approximately 40% of that is in pesos and the other 60% is dollars. Talking about contractors which actually do most of the development. In terms of actual equipment, pretty much everything is imported. So, p retty much dollars, some euros.
Thanks. I just wanted to ask on your guidance on unit cost inflation, ex FX, for the second half, year- over- year or half on half, whichever's easier for you.
In the second half, we don't see any major pressures in terms of increases in unit price of our intakes. I would say it would be along the lines of what we just saw in the first half for the whole year, you know, something between 2% and 3% and the last.
Okay, sorry, I'm going to keep going. A couple of other ones was just on the buyout of the Silver Stream contract. $40 million seems a little bit low when you consider you received $34 million in H1. Was the mine life just. Were they just going to shut the mine essentially? Is that why that payment was so low?
That was basically the alternative, yeah.
Is it subject to a Class 1 vote or is it not material enough?
It's not material enough. Okay.
Okay, that's it. Thank you very much.
Thanks. Morning. Richard Hatch from Berenberg and a couple of clarification points. Just on the costs, did $674 million of adjusted production costs in the first half. Should we therefore, I guess, peso strengthened a little bit? I think so. Should we. How should we be thinking about that going into the second half? Like a little bit higher, but still. Pretty well controlled, this one?
I would say that is the case. Like I said, we had a very favorable average exchange rate effect in the first half. Again, in the second half we had almost 20 pesos per dollar versus 17.10 in 1H24. The second half of 2024, the exchange rate was 19.50 in 2H24. Currently, the exchange rate is around 18.8, 18.9. If it remains where it is, it would actually be a small revaluation in the second half, which would take away a bit of the benefit that we had in the first semester. In other words, we're not expecting to have that benefit in this cycle.
Thank you. Sounds, Octavio, that you're not going to push for some top of the cycle M&A, which sounds good to me. I think the market probably likes that too. Takes my heart rate down. The H2 2024 dividend was something that surprised the market very positively. You paid a lot of cash back to your shareholders. Should we expect, if prices stay about the same, I appreciate you've got an attractive profile of CapEx projects, but should shareholder returns be expected to still be quite elevated going into the end of 2025?
You're absolutely right. I mean we've seen the kind of deals in terms of M&A that have gone out in the market, and we are very disciplined about looking at that part. As we mentioned before, our main objective, one that we invest across the cycle, so I would say is exploration. That is why we have the development pipeline with the challenges that we mentioned. We would like to see those projects coming on stream earlier. We are disciplined in the way we bring them into operations. We like to have operations with the quality of the current assets. That's a part on the terms of M&A in the meantime.
Yes, we will continue to see that cash built up going on that north direction, and the exercise we do at year end and that we as management team propose to the board after looking at all, what we have in front of all of us is our mines of course demand fair amount of investment, most of them on the vein systems. We need to do a lot of development, a lot of raise boring, ventilation and everything. Approximately 120 km per year of development. That's a large investment. Renew the fleet that we have across all of our mines, all the needs in terms of exploration, brownfield and greenfield, and also to maintain the resources and research at our mines and then the usual dividend policy returns for shareholders. After we consider all of those needs, yes, it's something that we can consider as well. Some special dividends you mentioned.
Helpful, thank you. Last one is just on Herradura costs, just generally operational performance would be good. Congrats to both the COOs. Just on Herradura cost, $1,371 all-in sustaining cost. Daniel, you're comfortable, you can keep that level please.
That level has been extraordinary in the first semester. We think it's going to go slightly up, but we are confident in trying to keep it below $1,500 levels. That is what we're trying to achieve as a long-term position in terms of cost.
Thanks.
Good morning. Thanks for the call. Just a couple of follow-up questions. One on cost, how are you thinking about your cost for 2026? Do you see potential for more improvements?
Improvements as in cost reduction and efficiencies? I would leave that to my colleagues here.
We still see some room. Let's go back to when we talked about the labor reform and the need at that time to internalize a lot of the contractors headcount that we add in each one of the operations. We are still working towards reaching a more efficient level, and I think that's going across all of our operations. I think there's still room to improve in that front. Also, what we've seen in the market is that in previous periods, as we saw metal prices going up very rapidly, we're seeing also inflation going up from the mining sector. This is not the case in this year, at least half of last year, and therefore we believe that will continue to be the case. We have not seen also the impacts of tariffs as well, and I think the market has very much absorbed that first effect.
We are hopeful that we will see inflation in general terms being contained, and then the work across all of our operations will continue to bear some fruits in terms of containing the cost and hopefully lowering the cost the previous year.
That's helpful, thank you.
Hi Dan from UBS . Couple of follow-ups.
Just to clarify on the cash return, you've previously spoke to wanting to and targeting $1 billion of cash balance before you potentially distribute special dividends. You're talking $2.6 billion at the end of the year. Should we therefore assume $1.6 billion of distributions in the base case in the second half?
I'm not sure about that. I said $2.3 billion by year end. I'd say $2.3 billion. You're right, in previous years that's pretty much the criteria that we follow. At the end of the day, it will be a poor decision, but it's definitely on the table being considered.
In previous periods we used to have only CPO as a development project to be developed. The kind of investment that we were seeing at those times were in the region of $400 million, $400 million+ . The prices that we see now in the pipeline are larger in CapEx at least in the coming years. That would be one aspect to have in the radar and then Guanajuato Sur as well. We have two in the following three to four years and Rodeo and Tajitos, all the lower CapEx numbers.
Okay, thanks.
Thanks. I just had one follow-up, I guess, related to that. Could you just run through where the indicative capital expenditure numbers sit for each of the growth projects on slide 35?
Way to look at this graph. I mean as we mentioned Rodeo exploration, a rough number that we have for exploration this year is approximately $10 million. Rodeo, we're spending $8.3 million, $8.3 million, and then we will have enough resources hopefully to run pre-feasibility and feasibility. Previous estimation for that project was in the region of $300 million or so.
Previous estimation, however, we think it's more likely to be on the 450 updated.
Data Orisyvo was in the region of $1 billion. $1 billion and we are optimizing that one. Tajitos lower number than Rodeo and Guanajuato north of $500 million or so. That's our numbers and of course we will be. We would continue defining those CapEx as in coming years and then coupling that information with the, with the graph I mean right, right now exploration all of them except for and as we advance through pre-feasibility, feasibility, ad etc. I mean you will see the CapEx numbers being defined for the coming years accordingly.
Great, thank you very much.
Can you give us the same numbers? For the brownfield projects for Guanajuato Sur and Herradura?
Yeah, Bajas, what we're finalizing right now in terms of details is to understand how much is the recovery CapEx for pumping stations, energy, et cetera. We don't think it's going to be more than $60 million, $70 million in total to start to restart the operation at Bajas. In the case of what we call the RA underground, that is the longer term, we don't have a view right now because it's deeper, it's more complex. We think it can be in the $200 million range, but that's to be s een.
Returns we have about something in the length of. Okay, with that we conclude presentation, and we thank you for.