Good morning, everyone. Thank you for joining us today. Welcome to the interim results presentation in what was an outstanding period for the company. My name is Octavio Alvídrez, CEO of Fresnillo, and this morning, I am joined by Mario Arreguín, our CFO, and Daniel Diez, Chief Operating Officer of the Northern Region. As always, I need to point out to a disclaimer before I begin. But let's move on to set what we will cover in our presentation. I will take you through the key operating and financial highlights. Daniel and I then provide an operational update, followed by Mario, that will provide us a financial update. I will then conclude and provide some comments on the outlook. We then look forward to receiving your questions. So, turning to the highlights for the first half.
We delivered a strong operating performance in the first half, driven by consistent execution across our asset portfolio. Gold production showed a strong sequential momentum, increasing 13.8% against the first quarter. However, as anticipated in our 2026 guidance, first-half gold production decreased 7.3% year-on-year due to lower volume of ore processed and recovery rate at Herradura. Our first half silver production reflects an anticipated year-on-year reduction, primarily due to the planned end of the Silverstream agreement, alongside expected grade variability at Saucito and Juanicipio. We remain fully focused on managing costs in the face of continued inflation and moderation in the high-price environment and the ongoing strength of the Mexican peso. Controllable costs rose by only 3.5% in first half 2026. Lastly, we continue to progress safety improvements, the priority of the group.
We continue to see key injury and accident metrics trending downward with an ongoing commitment to zero fatalities. Some of the financial highlights. First half 2026 was another record financial performance for the company, and I have set the key highlights out here. In particular, we saw revenues up sharply, driven by higher precious metal prices, with gross profit and EBITDA more than doubling alongside a strong increase in margins. This financial strength has allowed us to more than double the interim dividends versus the prior year. Again, paying out in line with our long-standing dividend policy. We have returned over $2 billion to shareholders over the past five years, a record of which we are very proud.
We have also used this balance sheet strength to selectively and strategically advance our business with the acquisition of Probe Gold at the beginning of the year, a nd more recently, an investment in the project Sinda. Like Probe, Sinda meets our disciplined, strict, and targeted criteria, giving us additional exposure to geological silver districts that complement our portfolio. Turning to precious metals [audio distortion] 2026, supporting expectations of a structurally higher price environment going forward. The outlook for silver remains equally constructive, with analysts forecasting an average 2026 silver price of $76/oz . In addition to our production, controlling of the costs, these [audio distortion] metal prices give us further confidence in our strategy. Now, turning to the performance of our mines. As you know, Tomás Iturriaga has stepped down from his role as COO of the Central Region, and so, I will present the operational overview for the Central mines.
Gabriel Durán, a seasoned and experienced professional mining engineer who has been with the company for more than 30 years, and he's been coordinating the three for the Central district for three years, will temporarily assume responsibility for the region. In addition, reporting directly to me. Fresnillo saw a solid first half in line with expectations. In fact, we raised guidance on expected gold grade from the Fresnillo mine, as seen on this slide, where gold production increased 47.6% versus first half 2025. It is worth noting the mine development rates increased 13.3% versus first half 2025, supported by improved equipment availability. We are also closely managing costs. I would like to note here that the higher cost is primarily an arithmetic effect of our silver equivalent reporting under higher silver prices, but co sts are a focus for us in the second half of the year.
Turning on to Saucito, was also in line with expectations, with both silver and gold slightly below last year. The key factor remains the ongoing Jarillas shaft connection, which reduced ore volumes and increased haulage costs. This will be completed in the third quarter, improving operating efficiency and the cost profile going forward. While we optimize the mine sequence, we are reviewing the medium-term production outlook, although our 2026 guidance remains unchanged. On Juanicipio, continues to perform in line with our expectations, with lower silver production reflecting the planned mine sequence and expected ore grade. Gold production was in particular highlight, increasing 19.1% year-on-year as a result of higher grades. Overall, Juanicipio continues to demonstrate its strong operational performance.
I will now hand over to Daniel for him to give a short review on the rest of the operating assets, Herradura, Ciénega, San Julián, but also the brownfield and greenfield development projects. Daniel.
Thanks, Octavio. Good morning, everybody. With respect to the Northern Region operations, starting with Herradura, as you know, one of our most relevant assets. We have a slight decrease in gold production, as expected, during the first half of this year. This is compared to an extraordinary first semester during last year in terms of production, but also the normal decrease in head grades that we were expecting, and t hat is not affecting our ability to deliver on our guidance during the year in gold production. In second half, we expect, compared to the production of the first half, a slight decrease [audio distortion] s lightly on production. However, again, the guidance that we have for the year in gold production and in production for Herradura is not at risk at all.
I would say, the most relevant part in the Herradura mine and district is the evolution of the structural projects that we are developing there. As mentioned in the slide, the Leaching Pad XV and the CIC plant that you can see in the pictures were completely built last year and are at full production now. The ADR plant, the Sulphides Crushing Circuit, and some other structural projects that we're progressing there are advancing in the engineering phase. We're preparing the infrastructure in Herradura for the next 20 years coming and for the development of the district. The average grades that we expect, you can see in there. Not significant changes compared to the previous years. In terms of cost efficiency and operational performance, the results in Herradura have been sustained. Diesel is hitting us somehow, and you can see that reflected in the cost.
Diesel price, of course, it's a relevant factor, and inflation in Mexico also has an effect. However, we are at very competitive levels of cost in Herradura, so we're very optimistic about what's coming. In Ciénega, the news are quite positive. What we have been mentioning about the plan of reshuffling the operation, expanding more on exploration, given that we still have potential, is starting to deliver. The gold production increased 15% compared to the first half of the previous year, and that is because the team was able to accelerate the development of the Victoria area. That is the new high-grade gold area that we have in Ciénega, and it's going to be the support of the next three years of production in La Ciénega, which are very good news. Silver production, as expected, we are increasing gold rates, but silver is decreasing, so t he decrease in silver production is the consequence of that.
No surprises there, which is good news. In terms of the ranges of grades expected moving forward, we increased slightly the range for gold grade this year to something close to 1.7, and silver remains at the same levels. In terms of cost containment and efficiency also, Ciénega has delivered very good results, decreasing the cost base and sustaining the overall expenditure and increasing production, hence, the results that you can see on the screen. And finally, San Julián. San Julián, as you probably remember, has been transitioning during the last two years, moving to just one operating plant, the veins facility. Cost structure is sustainable right now. We are very confident about the long term, and the results support that. Production is slightly lower compared to last year. Grades decreased somehow.
However, what we are foreseeing for the future are these are the levels of production that we can sustain in San Julián moving forward with costs under control. Hence, we have a cash flow-generating operation for what we see now, four to five years, but e xploration is still providing good results. We expect to have a long-term operation there as well. That's on the operations side. To give a quick brief on the project side for Fresnillo, let's start with the brownfields. As we mentioned in the last couple of meetings, we are putting in the company a strong effort, both in cost containment efficiencies and also putting some production forward from brownfield opportunities. Marginal increases in production in our operations, and in particular, from two of our brownfield projects that are Valles and Noche Buena. Happy to mention that those projects already started.
In the case of Valles, the engineering was completed. We finalized the operational model for the mine, and the final mine plan now is showing us a life of mine of 10 years compared to the original seven that we had. So, that's good news. We already have the contractor in place. We're starting development right now, and production, we expect to start in Q3 of this year, actually. The production range, it's important to have a range in there. It's going to be in the long run between 50,000 oz and 90,000 oz of gold per year, with an average of 65,000 oz. The good thing is about the grades that we have in Valles, it's a low capital intensity.
The ore will be processed at the Herradura plant, and the grades are very good, so the cost of production will be lower, and will complement the delivery from the Herradura district in gold production. In Noche Buena, that, as you remember, is a mine that was in care and maintenance, planned to be closed. We reassessed with the new gold prices, and the evaluation was quite positive, so we're reopening the operation. We continue releaching the old heaps, however, t he restart of operations, it's going to be during the last quarter of this year with pre-stripping of the new phases that we will have in Noche Buena. Delivery of ore, of fresh ore, will start next year in Q2, and fresh production we expect in the second half of next year coming from Noche Buena.
Also, complementing the gold production profile from the district in Herradura that we'll see, and we will start communicating moving forward, the profile that we expect from the district moving forward in the next coming years. Herradura Underground, it's the deepest part of the main Herradura open pit. It's a longer-term project. However, we expect larger production from there, ranging 120,000-160,000 additional ounces when it starts production. We are assessing what is the right timing for the transition with the open pit and with Valles as well. But for what we're seeing right now, we expect that to be in 2032, complementing production as well. In the case of Tajitos, Tajitos is a satellite pit 30 km away from Herradura. We are progressing with metallurgical information.
We needed to have some better information there to move forward, and we are scheduling the PEA for the first quarter of next year. However, in that area also, what we're thinking in the Herradura district is that 40 km corridor in total, we have good exploration potential. In some of that exploration potential, we see it reflected on the latest campaign in Tajitos. We're finding a new gold high-grade veins area. It's different to what we had before, so good possibilities in their other development. In the case of greenfield projects, Rodeo is the first one. We mentioned this before. We were reassessing the quality of the asset and the engineering. We just completed the revised PEA, and the results are quite positive.
The new PEA is showing us that we have a possibility to increase the production levels from the previous ranges between 75,000 oz and 90,000 oz to an average between 90,000 oz and 110,000 oz from that project. So, that's good news. The critical path in here will be driven by the permitting process for sure. We're starting that as we speak, actually. According to the schedule, and of course, subject to permitting, we expect to have the new operation up and running by the end of 2029 and early 2030. Guanajuato Sur, we have mentioned this project for some time now. Now, we have a better grasp of what it is in terms of production potential. It's a high-quality silver asset for the company. It will take some time to be developed, given its depth.
However, the most relevant thing is that we are progressing with the prefeasibility study, and now, we can confirm that the production range that we expect on average in the long term is going to be between 15 million ounces and 17 million ounces of silver per year, starting according to our current plan in 2033. However, we are assessing a few alternatives in order to bring that production forward at least a year. We are assessing that. Again, subject to permits, we expect to start early works, main shaft, and the main ramp for the project during somewhere in the second half of next year. Orisyvo continues its development. Metallurgy, as we have mentioned before, it's one of the critical things. Good results so far. So, prefeasibility B stage continues advancing during the rest of this year, and we expect early next year.
Most efforts right now in Orisyvo are around land acquisition and government and community engagement. That is an important part for the development of Orisyvo. It's a large project, significant production, around 200,000 oz of gold. However, large capital, so we are optimizing right now. That's part of the review, optimizing the capital expenditure in the project. And finally, Novador, our latest project in the portfolio, the acquisition with Probe Gold. The updated PFS, it's ongoing. We expect to have that completed before the end of this year. Condemnation drilling started this year. Good progress in there. You can see a picture of the harsh winter. However, during the first half of this year, the condemnation drilling continued for the engineering efforts. Project activities are continued today. However, we have some delays about the possibility of obtaining the permits in order to continue drilling.
We expect a solution on that relatively soon. However, we have to wait and see. Coming from Novador, again, production potentially starting in 2033, according to the current plan. Production that we expect is around 200,000 oz/yr . What you can see is a summary of our portfolio of projects. Sizeable portfolio. Mostly gold. However, we have a very high-quality asset in Guanajuato in terms of silver production, so, a lot of activity moving forward. Handing over to Mario for the financials.
Thank you. If you don't mind, I'll just stay here.
You can stay.
It's very pleasant to be here in London, with this unusual hot and sunny weather. But it's nicer to be here and to be able to share with you what I believe are truly exceptional financial numbers. As a matter of fact, the record high setting for a first half since we did the IPO 18 years ago. Of course, this goes along with the fact that the price of silver reached almost $120/oz in the first half of this year, and the price of gold reached above $5,000, which at least, I haven't seen. Unfortunately, prices have come down a little. So, the good news, this is our record-setting first half of the year numbers. Second half, if prices remain where they are at the current spot price, obviously, would not be as good.
Having said that, and if you look at the lines outlined in yellow, which are the different profit levels, you will be able to appreciate that gross profit was 131% above last year. Operating profit was 149% above last year. Profit for the period was almost tripled compared to last year. And EBITDA was almost doubled compared to last year. Let's just briefly go back to the gross profit, which was $1.3 billion above last year. If you move up that same column, the second from right to left, you will see that the main reason clearly was the increased level of adjusted revenues of $1.4 billion. If we move very briefly to the next slide and we look at what was behind that increase of $1.4 billion, you will see that price was, and not surprisingly, price was the main reason.
In particular, silver, where we had a benefit of almost $1 billion. The price of silver, the average realized price of silver for us during the first half of the year was $76.30/oz versus $33/oz that we saw in the first half of 2025. That's a 126% increase. This was the main factor behind the increase in revenues. Of course, gold, the average realized price for us was $4,647 versus $3,169. That's a 47% increase. That was also a very important reason behind the increase in revenues. And even zinc did very well, 27% above last year. So, prices in general, as you can see, had a very important impact. In terms of sales volume, as we knew it was going to happen, we had a lower sales volume in both gold and silver.
But I do want to emphasize that we were above our budget, so this was perfectly predictable. If we go back to the income statement very briefly, I think it's worthwhile commenting on adjusted production costs. As you can see there, we had an increase of almost 21% or $138 million. I believe the best way to look at this is if we go to what we call the rainbow analysis, which is on page four. On the right-hand side, in the green bar, you have the total variation of $138 million. I want to draw your attention to the first two graphs, I mean, bars in yellow, which represent, firstly, the behavior of the Mexican peso. Here, we're talking about the average exchange rate for the first half compared to the previous year. We had a 12.5% revaluation.
Just to make it clear, the average exchange rate in the first half of last year was 20 pesos per dollar. What we saw this year was only 17.5, which is, as a matter of fact, the current spot price or exchange rate. On the second column, you can see the impact of what we call cost inflation, and t his is based on our own basket of consumables. We're talking here about the increase in the unit price of the different items that conform our basket. That wasn't actually too bad. It was only 3.25%, but that had an impact or a negative impact of $33 million. When you add these two factors, that's how you get to what we call our cost inflation. Do we have that slide here? No. In the appendix. Okay.
I think the main message here is to convey to you that 66% of the total variation in the cost of production was due to the combination of the revaluation of the Mexican peso and what we call the cost inflation. Now, of course, we had some operating issues that we would like to talk about. If you look at column number five, for example, you will see that we had an increase in our operating cost at Saucito . As you probably know, we are currently deepening the shaft there. It's a very important project, which obviously, will generate very important benefits when we conclude it later on this year. But for the time being, what we're doing is we're extracting the mineral using contractors and using mobile equipment to take it all the way up to surface.
We're no longer crushing the mineral below the ground where we typically do it before we hoist it up to the surface. We're doing that also at the surface and using contractors. Temporarily, our cost of contractors has gone up, and it's obviously at a higher cost compared to when you operate normally your shaft. This is a one-time. Hopefully, like I said, we will see the benefits of the new deepened shaft when we conclude that project. This had a temporarily negative effect of $10.5 million. Now, in bar number four, what we show there is the effect of the higher stripping that we recognized in our income statement related to Herradura.
As you know, every year, once reserves and resources are calculated and reviewed and the new mine plan is also defined, we calculate or estimate the stripping that we'll take on in the future. What came out of that is that this year, we're not capitalizing any stripping at all. 100% of the stripping is taken directly to the income statement, which was not the case in the first half of last year where we did capitalize. As you can see, it's just an allocation when you sum what is capitalized and what is taken to the income statement. It's basically the same one year versus the other. But it's the way that we accounted for that change to applying this criteria that I just described to you. And also, the fact that we have longer haulage distances now at Herradura.
Those two factors had a negative impact of $11.4 million. Lastly, on bar number three, we had higher maintenance independently of exchange rates or inflation. We just used more maintenance, if you will, at several of our mines, and that had an impact of $15.2 million. In conclusion, 2/3 outside factors, $10 million a temporary factor one time, and bar three and four, those look like they're going to stick around for a while. If we go back very briefly to the income statement, just to comment on some of the lines perhaps. We already spoke about gross profit, right? We saw that the main reason for that was the increase in the prices. Now, if we move to the operating profit, I think the item to comment on is the exploration expenses.
We invest in, for me, it's an investment more than a cost, but anyhow, it was $109 million, which was $32 million higher compared to last year, but well within the budget. As a matter of fact, below our budget, and you already have the guidance that we have given for the full year. But when compared to the previous year, we are seeing an important increase. If we move further down the income statement, one important item, perhaps just because of the significance in the variation, is the finance income. In 2025, you see a negative number of almost $180 million. I'm sure you remember that back then, we simply canceled the Silver stream that we had, and we had that negative impact.
This year, we are only recognizing $25 million, which is basically the difference between the interest that we received on our cash balance and the interest that we pay on our long-term debt of $350 million, which is due in 25 years from now. Moving on down, of course, you will see higher income tax and mining rights. Remember, the mining rights that we recognize here is what we call the special mining right, which is 8% of a base that is very similar to EBITDA. With the better prices, obviously, that mining right increases, and obviously, income tax expense with the higher price and higher profit before taxes, it's natural to see higher taxes. I think, now, we can move on to the cash flow statement.
I would like to start with the very first line, because this is the cash generated by our operations, which was almost $2.36 billion. Again, record high. We more than doubled what we saw last year, so p retty good cash generated by our operations. But this first half, we had important uses, too. I'm going to mention the most important ones: i ncome tax, and special mining rights, and profit sharing. Here, we have three main items. Provisional tax payments that are made from January to June, which are related to this fiscal year, and you simply apply a factor over sales, and that's what you have to pay monthly, and let's say that that is a tax paid in advance related to this year.
Also, we presented our tax returns in March for 2025, and after taking out the provisional payments that we paid last year, we still had to pay around $300 million just for the 2025 fiscal year. And of course, mining rights, which were much higher compared to last year. That pretty much describes the $890 million that you see there. Another very important use, and that I'm sure you're very happy about, are dividends. If you look at dividends paid, we paid almost $800 million, and that's only what we paid in May, which was related to the final dividend for 2025. We also paid dividend to our minority shareholders. Here, we're talking about Pan American Silver, who owns 44% of Juanicipio. We paid them almost $200 million.
In total dividends between what we paid to our own shareholders and to minority shareholders, we're talking about $1 billion in dividends. Of course, another important use that you see there is the purchase of Probe Gold. Almost $550 million. My peers here have already talked about that important investment and a very important project for us. Fifth and last, I would say, important use of funds is the purchase of property, plant, and equipment CapEx, which for this first half of the year, we used $236 million, which is higher compared to last year. All in all, it's just five uses that I just described to you. If you add them up, it's $2.7 billion. That's why you see a small reduction in the cash balance compared to what we began the year with, which was $2.76 billion.
We closed in June with $2.5 billion, which is a very healthy cash balance. With that, I think I will leave it at that. Before I pass it on to Octavio, I would like to make an important announcement here. Gabriela Mayor, who has been here in London for the last 14 years as Head of the London Office and also Head of Investor Relations, is finally returning back to Mexico for different responsibilities now. She will now be the Vice President of Financial Planning. And I would like to introduce to you Juan Pablo Rojas. If you want to stand up, please.
Yes, of course.
Juan Pablo Rojas will be now, as of Monday, as of yesterday, your new Investor Relations Person and the Head of the London Office. I want to thank Gabby for a great job during those 14 years, great effort, and I would like to ask your support as analysts and as investors for Juan Pablo, who has been with the company now for 18 years, and he was, until yesterday, the Vice President of Financial Planning. We're basically switching so people get new experiences. That's the announcement. Yeah. Octavio.
Thank you, Mario. Thank you very much, Gabby, for all these years serving our London office. I think it was a outstanding time for you, but also for the company, of course. We are very glad to have you back in Mexico with additional responsibilities, of course. Thank you, Mario. Now, turning to the outlook. Expected production, we have already confirmed we remain on track to meet our guidance for 2026. Expected production for 2027 and 2028 expressed in silver equivalent ounces remains unchanged. However, we expect a slightly higher production of gold as we have seen from the trends in Herradura and importantly in Fresnillo, and a slightly lower production of silver from Saucito. As usual, a more detailed update regarding individual metal production expectations for 2027 and 2028 is expected to be issued in Q4 production report.
In terms of CapEx, a good and continued experience on rationalizing and optimizing our CapEx numbers, coming down to the range of $500 million-$550 million. This is through a very disciplined approach and exercise that we run across all of our operations as we go on the operating year. Just a brief comment on the timeline on the different projects. Daniel mentioned already that we expect some production out of Valles this year. First on the brownfields, Noche Buena, very good news as well, extending the life of the mine and seeing some production coming on next year. And then, the rest of the projects that Daniel already mentioned, Rodeo, Tajitos, Herradura Underground, Novador, Orisyvo. Importantly, on the silver side, Guanajuato, that continues to give us very good exploration surprises. Just to conclude, this has been an excellent first half 2026 for Fresnillo.
We have delivered another solid operational performance, which has resulted in a record financial performance. We have remained committed to foster a strong safety culture, protecting the environment and maintaining open engagement with our communities. While there is always more to do, I'm delighted by the way our people have embraced these priorities. Coming, and this is important, from two years, 2024 and 2025, in which we had the adjusted production cost very much at the total production cost at the same level, w e have maintained our disciplined focus on cost control, and this will remain a key priority throughout the remainder of the year and beyond. We continue to invest across the portfolio as set out today, we are advancing fantastic new projects to production over the coming years.
Finally, we are delivering significant returns for our shareholders in line with our dividend policy while preserving our capital for disciplined future growth. With that, we are happy to take your questions. Jason?
Sure. Microphones. Jason Fairclough, Bank of America. Just a couple of questions on the growth projects. Could you talk a little bit about the Canadian assets? It seems like there's many, many years between now and when we might see production. You paid a lot of money for this. Why is it taking so long to bring these things into production? Octavio?
I didn't catch which project you were talking.
The Canadian projects, Novador.
Oh, Novador.
Yeah.
This is a strategic move, of course. Number one, the quality of the project. Number two, that goes along the lines that we try to develop all the time. Number two, Novador project, which is the centerpiece of the acquisition with 8 million ounces of gold already in resources, comes along with a large land package as well for exploration. We believe this will come as another mining district in the future, having a centerpiece as Novador with 110,000, 120,000 hectares of exploration. Yeah. Ground. With that, we will have the Fresnillo district, of course. The Herradura district, as Daniel explained, in which we have several operating assets. Guanajuato goes along the lines of a district in the future. We not only have Guanajuato Sur already with sizable resources, but also another four or five different exploration targets for the future, and then Novador.
All in all, it complements our strategy for Fresnillo plc.
Okay. I'm just going to push you a little bit. Why does it take so long to bring it into production?
Well, it's a combination in which we are, right now, at the stage of prefeasibility. We're reviewing that prefeasibility as well. We're going through some of the permitting process, as Daniel mentioned, some of the condemnation drilling. And then, it's just the time that we believe is good to bring that kind of project in the future.
To follow up on a similar note, one of the other projects you're still talking about is Orisyvo, and I feel like that's been in your project pyramid since the time of the IPO. Certainly, been more than 10 years. Help me out here, Mario. Maybe even 15?
Since the IPO.
Since the IPO. So, it's taking a long time, so c ould you maybe just talk a little bit about why that is taking so long?
Yes. Orisyvo was a special case, but you're right. In the first 10 years, as you very well know, of Fresnillo, we had our hands full with different projects. Almost one greenfield project or expansion at each one of our operating assets from 2008 to 2018. Orisyvo, at that time, was a sizable project with sizable resources, almost 10 million ounces in resources. We thought about that as an open-pit future operation, complex metallurgical process and recoveries. It took us long to really go and nail down the metallurgy there, refractory ore as well. Now, we are in a way of strengthening the project that has ahead of us additional challenges, indigenous consultation, high infrastructure investment, roads. It's on top of that Rarámuri mountain range in Chihuahua, so it takes time.
But I mean, we like to go about developing of projects once we have everything in place, so that we improve drastically the probabilities of success for these kinds of projects .
Okay. Thank you.
Yeah. Yes.
Thanks, Jay. Morning. Richard Hatch from Berenberg. A few questions. Firstly, just on the CapEx, it's a pretty big cut, $200 million in your CapEx. Can you just help us to know where that $200 million has come from? Just because I also know you haven't increased 2027 or 2028, so where has that $200 million gone?
In general terms, across various areas of investment. We make sure that those investments that our operations need are deployed. The connection of the Jarillas shaft, that is going to be concluded. The conveyor belt at Juanicipio as well. Mining works, importantly, I mean, t hat's number one. Mobile equipment, some of the sustaining CapEx, we'll review it through the year, and if we can, we extend it and cut the CapEx numbers. Tailings storage facilities as well. We review the original design, the engineering, and everything, and if we can regrow some of the operating design for the tailings storage facility, we do and postpone that investment. What else, Daniel?
I think you covered most of the relevant factors. It's a combination between the ability to executing some of the projects, the ability to actually purchase some equipment that was not available for this year. And the other is the continuous effort on reducing and reviewing what we expand on.
Okay.
But some of the important CapEx is our priority. That is deployed.
Okay. You're confident that we're not going to see a creep in 2027 and 2028 as some of that comes back in?
No.
No. Okay. Mario, just on the costs, can you help us with a bit of a steer for what you're thinking in the second half? You've been pretty good at controlling costs. The peso's been against you, but recently, it's been a bit more stable. So, what are you thinking on costs into the second half?
Right. We haven't yet seen the most important impact of the increase of the price in oil. Diesel, as you know, is one very important consumable for us. Fortunately, it's become, I would say, a political issue in Mexico, so the president has tried to keep the diesel price more or less stable in peso terms. She's been lucky because given the fact that the peso revaluated, when you look at the average price expressed in dollars of diesel, even though in Mexico it remained constant, in dollar terms, it went up. But not nearly the percentage that worldwide price has experienced. In that regard, I think we're going to be able to maintain that. But it all depends how long and how much more the price of oil could go up, and it's very uncertain. I'm sure you know a lot more about that than I do.
In terms of wages, we have already negotiated with the union, so we don't have any risk there. In terms of other materials, like explosives and operating materials in general, again, they're more or less linked to oil prices, directly or indirectly. We only saw a 3.1% increase in the first half. Maybe, there's a lag effect there that we might see in the second half of the year. But at least from our side, what we're budgeting is something pretty much like budgeting for the next six months, pretty much what we saw in the first half.
Okay. Helpful. Thanks. And then, just a couple more, if I may. Just the first one is just on cash tax second half. How are you thinking about cash taxes in the second half of the year?
Cash what?
Cash taxes.
Cash taxes?
Also, you mentioned that you pay some of your tax ahead of time, right?
The provisional tax payment.
Yeah. With the gold and silver price coming lower, does that mean that you perhaps pay slightly less in the second half or no?
Yes. Look, provisional taxes are basically paid as a small percentage, a factor that is defined at the beginning of the year using a formula that is defined by the Mexican tax authority. It's the same formula every year. If you did very well in the previous year, that factor certainly will go up, which is what actually happened. You simply apply that factor to your sales. When you do your tax return on the following year in March, you do your actual calculations, and you compare that to whatever provisional taxes were paid. If the price of silver and gold go down, and revenues come down, and you apply exactly the same factor that you applied in the first half, that should come down as a use of cash for the second half of the year.
Okay. Last one, I was just curious, on Saucito, it seemed to be that you sold quite a lot less than you produced. Was there any reason for that? You sold 4.4 million ounces of silver versus 6.2 million produced, 26,000 oz of gold.
[crosstalk]
Any reason for that?
I think that's just probably some of the, I'm guessing a bit. Sometimes, it takes time to settle the assets exchange with the Met-Mex, so that might be the case. Nothing that I remember importantly.
We'll probably recuperate that in the second half.
Yeah. Okay, helpful. Thanks.
Yes.
Thank you. This is Alain Gabriel at Morgan Stanley. A couple of questions. Firstly, on capital returns, the first-half dividend came in slightly below what the market was expecting, and your dividend policy is a bit formulaic. How should we think about the framework of the year-end distribution to shareholders? How are you thinking about it? How should the market think about it? That's the first question.
Sure. In relation to the interim dividend, what we actually did is very, very simple. We simply applied our dividend policy. As you know, our dividend policy has been for the last 18 years since we did the IPO, is paying out basically 50% of our net income. What we do is we project our net income for the end of the year. We apply 50% on that. And since we consider this to be an advanced dividend payment, we simply apply 30% on that number that we are estimating, and that is the interim dividend. It's just pure math applied over our policy. I don't know what the market is thinking about the second half, but as we are using conservative prices, very much close to the spot price.
For the next six months, we're projecting around $55 the price of silver, and around $4,000 the price of gold. That's what we're projecting for the next six months, and based on that, like I said, we just simply apply the math.
Thank you. That's very clear. The second question is on your greenfield projects. You have four major greenfield projects. How do the spending on these projects feed into your CapEx budget for 2027 and 2028? What's included and what's excluded from the outlook slide that you have laid out?
2027 and 2028 is not including the growth projects, CapEx there.
If we.
Whenever we have a project approved, then we include it in the expected CapEx.
Okay. Any initial budgets that we can think of? Any ceiling of spending that you are thinking of, including the projects for 2027, 2028?
In 2027, we don't see significant expenditure. As we mentioned on the presentation, the larger capital, but we're talking about something between $40 million-$50 million, will be the start of the decline and the shaft in Guanajuato. For the rest of the greenfield projects, we don't see construction work actually starting. Next year, nothing significant. 2028 is something that we will start with you.
Thank you.
This is taken. Yeah.
Patrick Jones, JPMorgan. Maybe just a quick one on Rodeo. Given, obviously, similar to Orisyvo, it's one that's been in the portfolio for a long time. It looks like the timeline's moved out just a little bit, again, closer to 2030, but the production has changed a little bit. Are you kind of building a little bit more confidence this is going to be happening? And also, how long do you envision the permitting process to be if you think this could be online by late 2029, early 2030?
I think permitting process, as you're aware, has been relatively complex in Mexico during the last few years. Things are improving. The reception from authorities in terms of workout with the companies, the relevant permits, it's improving. However, there is some uncertainty there. In terms of the confidence, let me call it the technical confidence of the project, the work we conducted last year and we're just finishing now, it's very solid. Particularly around metallurgy, that was the critical point for the project to go on, and that's why we're confident about the numbers that we're showing in terms of increasing the production expectation. Rodeo, there's no simple project, but it's a relatively simple project to build. That's why, the execution time, once we have the permits, it's well under control. We think something between 18 and 20 months for construction.
That allow us to be in the timeframe that we're mentioning. However, it's going to be permit depending.
Got it. Maybe, just follow up on that. Anything from an environmental community relations issue that is particularly outstanding as part of that permitting process?
One of the most complex permits are around water management in Mexico. The area around the project, we have one water stream. That is probably what we will have to deal with in more detail. We started already conversations with the relevant authorities, but we don't see communities being an issue. We have a very good relationship with the close communities. Part of the investment is about water management in the area, building treatment plants for the existing community. We don't foresee complications on that area. I would say about water management on the water stream could be something to be aware of.
Thank you.
The last federal administration was not really supporting mining. This administration is being different. They started first approving some of the permits, environmental permits for the current operations. We saw some of the longstanding permits from the previous one being approved for San Julián, for Fresnillo, for Herradura as well. And now, they've moved into approving some greenfields, even open-pit minings already, or open-pit future mining projects. Just recently, a large one, which is San Nicolás, an investment by Teck and Agnico. I think they are getting a good pace in terms of understanding the importance of mining and therefore, approving the permits for new mining projects.
Great. Thank you for that. Maybe, just on another topic. It's been about a year or so since the MAG Silver deal closed for Pan American. Can you just talk a little bit about the working relationship with Pan American?
It's been working well. We have regular meetings, and they are being supportive of our mining plans and investments as well. We may, in this kind of relationship, improve or increase the exploration or budget for exploration, among some other things. All in all, it's working very well. Yeah.
Do you see any other areas to cooperate, either in the Guanaceví area or outside of the concession or potentially internationally with Pan American?
I think that will come. We have visited them, and they have visited with a larger group of mining professionals. They will also get a conveyor belt in some of the operations, something that we're doing right now. Those kind of technical exchanges we are doing. They have some other projects, but for the time being, we are not going in that scope yet.
Maybe, just lastly then also on Novador, given this would be your first project outside of Mexico. H ow do you feel about doing that either alone yourselves, or do you think that would be one that maybe down the road, you'd look at potentially bringing in a partner?
Which one, sorry?
For Novador in Canada.
Novador. I think it's manageable. We have the experience. We did, since the due diligence, a very good review of what Probe had done in terms of the first stage of the prefeasibility study. We modified some of their assumptions there. We reviewed even the future underground operation. Initially, we didn't see it with that much of something that we would do. But now, we believe it's something that we will do as well. The price also has helped growing the resources along the lines of some of the exploration, initial exploration we've done. I think that is something that can be managed by ourself. As I mentioned, the large land package may present opportunities to do something with another mining company, probably.
Great. Thank you.
If we can just shift online. We've just got two questions online, then we'll come back to the room to wrap up. Gavin, can you go for our first question, please?
You have a question from the line of Marina Calero from RBC Capital Markets. Your line is open.
Good morning. Can you hear me?
Yes.
Yes.
Yes.
Hi. Good morning. Thanks for the call. I just have a couple of follow-up questions. First, on your capital returns, can you share with us the gold and silver prices that you've used to estimate your net income for the full year?
Yes, of course. The price of silver that we're using for the six remaining months is $55/oz . Price of gold, $4,000/oz .
Yes. That's great. Very clear. My second question is on Guanajuato. I think you mentioned the possibility of perhaps bringing these projects earlier. What will need to happen for these to materialize? You gave us, today, a production guidance range. Can you comment on the potential CapEx and cost profile for this project?
Sure. If I understood correctly, Marina, the possibility of bringing forward some months, eventually a year, the project will depend strongly off the ability of develop at higher rates the main shaft and also the ramp. We are assessing that. The other rates that we're using now are, let me call it average. We are trying to think of different ways to accelerate that, but w e will be able to confirm once the detailed engineering is completed. Your next question was about the production range. That's fine. In terms of capital intensity, we are still at prefeasibility level, but what we can comment is that we expect this project to be between $700 million and $900 million capital in total. That is the range that I can give you for now. Again, we are finalizing the engineering, and we will be able to confirm final numbers when we're finished.
That's great. Thank you.
You have a question from the line of Daniel Major from UBS. Your line is open.
Hi. Can you hear me okay?
Yes.
Great. Thanks for the questions. The first one is clarification. You've provided the same three-year gold and silver production guidance that you provided at the interim results in February. Two parts to the question. Is the Valles Underground and the Noche Buena gold incremental volumes that are essentially going to happen at the end of this year and next year included in that gold production guidance? Is the first part of the question. Then, the second part, if you were to think about the risks to the up and the downside around the gold versus the silver. In recent years, silver has undershot and gold has outperformed. Is it fair to say the same risks sit around that future guidance going forward?
To your first question, the production from Valles is included in that forecast. The production that is not included, it's Noche Buena. Noche Buena was confirmed after we provided those figures, and we haven't modified that, so y ou can think about that additional production. It's not going to be significant on 2027. In 2027, we expect from Noche Buena, something in the range between 15,000 oz and 20,000 oz . But for 2028, we expect a full year of production. If these numbers help.
Okay, thanks. Then, in terms of the kind of cadence and the risks of the up and the downside to those numbers, gold versus silver.
Octavio mentioned during the presentation what we are seeing right now is stable in terms of silver equivalent ounces. We see not a risk, we see a possibility of increasing the production of gold that we're working out as we speak. As a risk, Octavio also mentioned that we see a risk of a slightly lower production, particularly from Saucito moving forward. However, the details and how much is something that we're working out right now, and we expect to provide more color before the end of the year.
That is something very well identified, Daniel, which is we've had some issues with ventilation and the development to the west in Saucito. A bit on ground control that made us change at least for the mining sequence for 2027, and slightly for 2028. That's something that we are assessing, and therefore, that's why we will update you in Q4 production report.
Okay. Thank you.
There are no further questions online. I'd like to hand back to management for closing comments.
Hi, it's Amos Fletcher from Barclays. A couple of just other follow-ups. I just wanted to ask Daniel, regarding your comment around you're not spending money on equipment because it's unavailable, what equipment is that? What areas are you seeing that in?
That's mostly on long-term items. We are renewing our fleet in Herradura. We purchased in December four new trucks. We are shooting for six new this year, but we'll also have to start renewing the loading fleet, and those we expected to have some of that available during this year, but i t's not coming online this year, so we are postponing that for next one. That's one example.
Okay, thanks. I just wanted to follow up. Could you just update on your preliminary thoughts on the CapEx for Tajitos and Rodeo projects, please?
Tajitos and Rodeo. In Rodeo, we have the numbers worked out as part of this study. In Rodeo, we expect a capital. This is still a PEA. We need to refine the PFS that we are starting in the next few months. But we expect a CapEx around $500 million, roughly speaking. In Tajitos, it's more uncertain. However, the configuration of Tajitos as a project is very similar to Rodeo. Simpler in terms of topography and layouts in general. Rodeo is a bit more complex. In Tajitos, I would think, and to give you just an idea, of something in the $400 million-$450 million, potentially, but very early stage, and we have to work out those details.
Thanks. Last question was just around your investment in Sinda, the recent U.S. IPO. Could you just talk about the potential benefits of that and what might come from it? Thanks.
That comes along the lines of consolidating on districts as well. The mining claims, this company finishes where ours start. That's further south to Guanajuato Sur. If we were to see the Guanajuato Sur mining district, we would have, as I mentioned, three, four additional targets, exploration targets, Guanajuato Sur, one more to south Naranjillo, and t hen is Sinda. That goes along the line as an investment of just to see possibilities in the near future in the same area.
Great. Thank you.