Fresnillo plc

Good morning, everyone. Thank you for joining us today. My name is Octavio Alvidrez, CEO of Fresnillo. And here with me in London, we have Mario Araguin, who is CFO, Tomasi Turriaga, who is COO from the Central Operations, and Daniel Diaz, Chief Operating Officer of the Northern Region. Welcome to our half-year results presentation. As always, I would like to point out to all the explainer 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. Tomas and Daniel will then provide some of the operational updates on their respective regions. And also, they will let us know some update about the development project they coordinate. Mario will provide a financial update and some more detail into the decision to agree a buyback of the silver string contract with Peñales. And finally, I will then conclude and provide some comments on the . We then look forward to a Q&A session. Investment proposition, you will be familiar with our investment case, and I believe it remains compelling and consistent. But first, let me make a few introductory remarks about the 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 stabilized our operations and are now in a strong position to capitalize on further growth opportunities with the 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 its title with the risk stem and ensure we have 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 highest 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 Fatima Norti 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. A couple of words on the silver and gold markets. We have all seen increased demand, not just from the traditional markets, drivers such as jewelry, but silver in particular is used in various industries, including electronics, and very importantly, solar panels, which have very much made this demand grown in the last years. The other part also in both metals is the supply constraint. I mean, we have not seen a large supply nor in silver nor in gold in the last 8 to 10 years. And in silver specifically, the market running a deficit for five, the last five years. In short, we are confident of the outlook for silver and gold metal prices being supported by these factors. 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 focused on installing a safety culture throughout the organization. The 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 on an employee in Exxon tractor 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 as we work towards or decarbonization 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 and operations, we will go back to those 75% as an objective to renewable energy consumption. I was also pleased to open the pro-annual water stabilization plan 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 Salcito, highlighting a public-private partnership to address water scarcity in the area. Our community relations efforts have really progressed. These initiatives are particularly important. 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 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 well 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 . and silver impacted mainly by the cessation of mining activities and San Julian disseminated our body and also the buyback of the Silver Stream Agreement from Peñales. We remain very focused on costs and this 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 Reina, 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 adjustment to our full-year guidance. Attributes of silver production guidance for 2025 have been adjusted lower for the silver stream buyback with no further silver stream contribution from second half 2025 onwards. However, on a silver equivalent in 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 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 costs, 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 microphone to Tomas 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 of last year. So that's a 12% increase on the grade. And we'll continue working towards that improvement, but we have been showing good progress. The challenge now at Presidium moves to the tons of the volume process. where we saw a substantial decrease compared to the same period or the Q1 this year. And mainly, 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.

So we needed to take out completely out of the mine plan, those tons.

some 60,000 tons in that area alone. So that's the main impact, along with lower volumes from the cotton field stoves and having to do with the geometry of the veins, narrower veins or shorter stoves or a combination of both. We are starting already a new access to the San Rafael area, and we are doing different things to improve our cycle times. That way, we can increase the volumes coming out of our current field stoves. None of these measures will have an immediate impact, so we expect a similar second half of the year in terms of volumes. Maybe a bit better, but not substantially better. However, for next year, we should be okay with the back-end sequence, and we should have recovered that area in your mind.

The development is at good levels, and we As you can see, we're putting the meters of development that we need in the mine.

And the gold and silver grays in the guidance will be our concern, will be there as guidance. Moving to Saucito, good performance in terms of the tons process, silver, lead, and zinc grays. Gold is a bit lower. but it was expected based on the sequence and the sounds of the mine that we have in the sequence for this year. So, it's not a surprise. That's expected. And development is a bit below of what we had in plans. Basically, two conditions there impacting the development. One, the ground conditions in Saucito, we know the ground, in South Sea to the ground quality is bad, is challenging. And 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 for our own and with the contractors. So we expect to get back on track with development for the second half of the year. The Jadillas shaft sinking continues progressing well. The sinking itself is complete, so we're now working on the installation of the infrastructure required for that to become operational, that being pressure, screening, pumping system, and all that. And we are also preparing for the interconnection of the two sections of the shaft first quarter next year. Silver and gold grade guidance is confirmed for Saucito as well. The Juanicipio, sorry, all good in the performance of the operation. Tons, grades, 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. Sorry. Bear with us. But still is within the plan and the expectations. So, all good in Juanisipio. The conveyor belt project is progressing relatively well with some delays in the manufacturing of the components. So, the commissioning of the system is leading a little bit Q1, Q2 next year. We are still analyzing the final date for commissioning and how to improve that delay that we are facing. Tailing dam number two is construction is complete and the dam is fully operational, so we have now almost nine years worth of capacity of the tailing dam. And The gold and silver grade also for the full year are within the guided range at Juan Isipio. So, then moving to the projects, the Orisibo project. So, with good progress, during the first half of the year, we completed the pre-disability A-level study.

So, that's now fully completed.

Also, all the engineering required for permitting is complete. So, we are working on the integration of the environmental impact assessment to be submitted for approval late this year. And so, that's a very good progress for Olisibo. And permitting being the critical part of the project, in the meantime, a third-party review of the project, looking to de-risk and optimize the economics and the design and the engineering of the project. So that's the progress there. And then in Guanajuato, the Guanajuato project, which is our main focus in that area by now, Very good progress also in terms of our drilling campaign, 46,000 meters of drilling in the first half of the year. And we are expecting good results again in terms of the resource increase at the end of the year. So not only we're putting the meters on the drilling, but we are getting good results out of it. And the scoping level study is well advanced and expected to be completed by early Q4 this year. So, all in all, good stable, quiet operations in the district, the central region, and good progress in the OECD on 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. In Herradura, as you can see, we had a very strong performance in gold production. It's with a 39 increase in production year-on-year compared to the previous one. And in terms of cost, also a very positive development in terms of consolidating everything we've been working for for some months already. The operational lessons program are 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 on 2026. We made a decision to make a pause, a pause, consolidate what we're doing right now, and start a new phase on the upcoming year. The long-term strategic assessment of what we have been describing as the Arradura 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, but 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 by its underground mine, it's progressing as expected. We're finalizing the detailed engineering uh as we speak um and the production plan we still have in our schedule the plan to start operations by the first half of 2027 and we were confident that we are on good track for for that and that will add uh something between 60 and 100 000 additional ounces of gold production for whatever with a district which is which is very positive Another one of the levers that we have for optimizing the railroad 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 the sustaining costs below 1400 and cash costs at 1150 levels, it's very, very competitive. Results are above what we expected, and we're confident that this is here to stay and consolidate Terradura 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 messages... 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. So the view of having Cienega as a sustainable operation is still there with very good results in terms of exploration as well. Cost control measures and total expenditure and productivity are in line with our expectations. So what we see right now in terms of higher all-in and cash costs and lower production is something we are reversing during the second half of the year. And division remains. Division remains. We're starting the production from the stoves in Victoria Complex. That is the new high-grade gold area that will be discovered during this year. And that's we expect it's gonna it's gonna become a very positive 2026 for sending in terms of in terms of production so all in all uh some issues particular to this year but uh it doesn't change the view that we have on the operation and it's sustainability in the medium to long term and san julian another another success story uh 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 optimizations that we performed during 2024, dilution management has been a focus during this year, and 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 DOD operating, below $17 per ounce of equivalent silver, which is very competitive. And... 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 line, and significant cash flow and operating results. So, all in all, good news. And to finalize, in the area of our greenfield projects, the northern region, we have a summary of Rodeo and Pajitos, both very similar in terms of the challenges, relatively simple projects, but low-grade. So when we made a review of the status of the projects, we made a decision in both of them in terms of, one, the risking the projects before moving ahead, and second, focusing in extending the resource base and the 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. A slight delay at the beginning of the year to start, but right now, 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 on 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. And after that, that's going to be the milestone for making decisions moving forward. And in the case of Tahito, similar, we are exploring not the main ore body. We have a very good potential in a vein system for high-grade gold in the Tahito series, which would be a complement for the project. And in parallel, we're working on metallurgy for derisking the main ore body. The test work is ongoing, and we expect a revised PEA by Q1 2026.

Coming over to you. Hi. Well, thank you very much. Good morning, everyone. Can you hear me? Excellent.

Well, you know, 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 the Peñoles Diesel Extreme Agreement. And for that, let me just give you a bit of background, and I'll just go very quickly through this slide. Peñoles notified Fresnillo of operational and financial difficulties impacting silver production and the long-term viability of the mine, and 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 for taxes. More recently, though, the senior received an updated reserve report from Peñoles for the Sabinos mine, certified independently by SRK Consulting, which showed a significant reduction in reserves, more than 50%. And I would say, definitely, this was the main, main reason behind the lower value of the mine and hence of the silver stream. A revised mine plan and sequencing program were drawn up with the validation from FRK Consulting, which materially impacted future production and free cash flow projections. Fresnillo, together with Peñoles, determined a new value of the Savinias mine to be between $47 million and $50 million. Fresnillo has agreed terms for Peñoles to buy back the silver screen 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 2025 income statement. The cash effect will be an inflow of $40 million in the second half of 2025. 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. And over the lifetime of the agreement, nearly 18 years since the IPO, Peñoles has paid Fresnillo approximately $882 million. Presidio has received approximately 52 million ounces of silver. So, we'll be happy to answer any questions and doubts that you might have regarding this, you know, 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. And 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 cross-profit, we are 160% above last year. In terms of operating profit, we're 266% above last year. And in terms of profit for the period, almost 300% above, considering the hit from the Silver Stream Agreement. And in terms of EBITDA, we basically doubled last year's number. So going back to cross-profit, as you can see, compared to last year, we were $630 million above. And 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, $450 million, and 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 increasing in gross profit. But, you know, one of the questions would be how much of that adjusted, increasing adjusted revenue was due to prices and how much of that was due to borrowing. So 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 adjusted revenues line was the increase in price of 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. And in the case of silver, we saw a 25% increase, increasing from $27 to $33.8 per ounce. And as you can see, there was a very favorable effect 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 so 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% of our 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.

So, the other important factor was the reduction in adjusted production costs. So, for that, I would like to use what we call our rainbows, which is on page 26. Again, on the right-hand side, you can see the green bar, which represents the reduction of $170 million. And by far the most important reason was, of course, the devaluation of the Mexican pesos during the first half of the year. And here we're talking about the average exchange rate, which for the first half of 2025 was nearly 28 pesos per dollar, 19.98 to be exact. which compared to 17.10 pesos per dollar, which was the average exchange rate for the first half in 24. Actually, 17.10 was the lowest we've seen in the last five years. So 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, you know, the increase or the average increase in the unit price of our main index. I'm happy to report that we see inflation pretty much, you know, 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 that contaminated our body and mind. So we're no longer including those costs. and that implied a $24 million reduction. And also on column 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 process at some of our mines, and that had an impact of $31 million in reduction of our costs. Of course, column number four and five will translate into lower income when we look at the cross-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 in the benefit of $23.3 million. So, to summarize, you know, the main reasons behind the increase in the gross profit, and we can move to the gross profit rainbow. Again, on the right-hand side, you can see the $630 million increase represented by that green bar. And 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 and on the positive side, we saw the higher oil rates and higher recoveries, which had a positive impact of 170%. $107 million. And if you look at the adverse side, you will see on the operating side, column number 10, the fact that we closed down San Julian DOB, well represented 41 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. And we already spoke about the effect of the exchange rate. It was as positive as column number three. We also saw lower depreciations. That's basically related to the closing of the San Julian DOP mine. And 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, and that had also a positive effect of $25 million. Overall, I think that gives you a good idea of what was defined as a variation in gross profit. If we move back to the income statement very briefly, if you look at 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. But 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 a, An effective tax rate of 18.5% compared to the statutory tax rate of 30%, much lower. And 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 in tax terms in pesos. So, the spot exchange rate at the end of December was 20.3 pesos per dollar. And at the end of June, 18.9 pesos per dollar. So, that was the main reason behind the lower effective tax rate.

And I think we can move on to the cash flow. Okay. If you look at the first column, bottom line,

you will see that we closed the year with a cash equivalence of almost $1.8 billion. And if you look at our financial statements, you will see that there's a little difference between what we've shown you here and the $1.55 million that actually are shown in the financial statements. And that's just the difference of $217 million is basically that we had those $277 million in bank and deposits, which were, which were, which were here three months after the closing of Doom. For me, at least, that's pretty much cash. And I thought, you know, that a better number to show you was $1.8 billion, although I have to admit If you are very strict and consider time deposits in AAA banks with maturities of around three to four months as not being cashed, then it would be $1.5 billion.

In pieces or dollars?

In dollars. Everything that we have, we do have a small balance 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, and we thought it would be a very good opportunity to sell, you know, 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. But that was an interesting source of cash, $150 million for the first half of the year. And in terms of uses, of course, one of the main uses, as you can see there, was the dividend pay in May, $500 million. Income tax, if you 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, and 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, so far, we've paid $124 million in provisional taxes. We paid $63 million in mining rights, and we 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 the cash flow.

As a matter of fact, I think I'm done. So happy to answer any questions that you might have in the Q&A session.

In the Q&A session, of course, obviously.

Very quickly, I mean, I'm sorry. So, looking ahead for the rest of the year, and we mentioned that we have adjusted very slightly the guidance for the year in terms of silver according to the, what we were expecting to receive in the second half of the silver string, which is no longer the size. in 26 and 27. in 25 we as we mentioned i mean we uh hire our uh guidance for for gold in such a way that uh silver lower goes up i mean on equivalent silver ounces remains very much the same the rest of the expected production 26 27 for gold and also let them sink, those remain the same. For CAPEX, we are also rationalizing the CAPEX for 2025. We do this exercise every year, see if we can lower the expected CAPEX number for the year. Also in 2025, we are reflecting some delays in terms of lower development at Saucito mainly, and also some of the droppings, ventilation, raised boring in Saucito as well. Also some, we are experiencing some delays, multiple delays in the installation of the conveyor belt at 2016. So, part of that is reflected in a lower topic number in 2025, 26, and 27, as we have mentioned before. Just a quick look on the development projects, how they, we believe we can bring those on a stream. That is a challenge on the first floor. development projects. Of course, we continue to advance those as described by Tomás and Daniel, but very focused on the brownfield projects, which are less of a challenge. We continue to advance on Valles underground, which is in the vicinity of the underground portion of the Herradura district that would give us ounces It's no larger investment, so we are focusing on those. And further ahead, of course, in Herradura, we have potential at underground that we will continue to see and develop in the coming years. But very focused on this brownfield production at the Herradura area. So all in all, and just to conclude, I mean, safety, as mentioned, we need to redouble our efforts across all of our operations. The trends are becoming positive, but I mean, we still work and see our operations free of fatalities, 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, of course, we've seen the kind of free cash flow that our operations, our sizable production brings. Focus on costs and productivity. So, those quality answers, we will continue to make every effort not only to control, but also to decrease costs across all of our operations. strong return for shareholders to increase dividends and advancing our exploration and continuing investment to progress our pipeline. And with that, I mean, we can turn into Q&A.

Jason. Thanks a lot for the presentation, and congrats on the great results. Thank you, Jason. A 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? But then 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 complement the answer. Okay. Yeah, I think we have, technically, we complement what we have in-house with qualified to do our projects. So, for instance, in Guanajuato Zoo, we have the same SRK projects complementing with our own technical team. Olisibo, we have involved to firms there. So, and then what we do mainly is use our technical team to do the reviews, internal reviews, to that. But I feel we are well within that setting for those projects. Do you want to add to that?

I share the same. I think our pipeline is moving forward at some point. we will require to strengthen our organization, but 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, and we mentioned before that we are strengthening our organization. We put in place a vice president of technical 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 brownfield project at Badges, and for the definitions in terms of plans to really much a force that we need in the projects in order to develop efficiently.

Just a follow-up if I could. So the dividend, I mean, obviously very, very strong cash flow. I had a couple of investors who were commenting that it seemed like the dividend was a little bit light, like it could have been maybe a little higher. And 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, widening our margins, focusing on costs, 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 in a yearly basis would be expected 50% of the net profit for the year. This is just the usual policy. In terms of building 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. And, you know, with all of the challenges in the coming years, we are trying to optimize the capex number. As Tomas mentioned, I mean, we included the previous ETA. That shows a capex number that probably is a bit on the higher side. Right now, we are trying to optimize that. but I mean that would require a substantial amount of cash. Rodeo, 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 it would require quite a fair amount of cash. of mining works, development, ramps, a shaft, and everything, bringing the cash needs up for Guanajuato Sur. So, I think we will continue to do the same. I mean, explore, finding new projects, develop and construct those projects, and those are the good use of Fox Cash. Thank you. Yeah.

Patrick Jones, Jacob Morgan. Just a couple questions on the Herodura side. Could you just comment a little bit more as to how you see the long-term production profile there with incorporating the bias underground? Should we be thinking about that as sort of a 500,000 ton, sorry, 500,000 ounce mine out to the middle of the next decade? And just on the CapEx side of that, can you give a bit of color as to how much that is specifically and what if that's within the 26, 27 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 the levels of production that we have right now, because the natural trend of the open field is decreasing in time. With all the projects that we have in the air, 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 of price to state at this level and 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 by six, that's what we call it, for cash for the year end. And we're expecting to close somewhere around $2.3 billion in our cash balance after considering, you know, taxes, everything. So that will put us in a very, very wrong position, I believe.

So to answer it slightly, how much tax would you owe in 2027 with respect to 2026 in terms of accrual of tax payables? I think you'd 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?

No, you know, as I was explaining, we are paying what we call provisional tax payments on a monthly basis. And I believe that by the 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. So, We might even end up having paid more provisional tax payments on a monthly basis than what we actually work through when we do our detailed calculations in March.

Okay. That's clear. Thanks. And then 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 more detail on the timelines to PEAs in 2026 and the underground expected in Heredura. Have you got more confidence in the pipeline now than you have in the last couple of years? And then just to follow up on Patrick's question, just to be clear, your guidance and goals for 2027, does that include the contribution from the underground at Heredura?

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 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, as Daniel mentioned, I mean, we need to finalize our exploration, consolidate the resources there, and then do the feasibility, pre-feasibility and feasibility. Orisivo, as I mentioned, I mean, is It's 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, I mean, is a big challenge there. Right now, we are optimizing or rationalizing that CAPTEC number that was out of the pre-feasibility A process. Taquitos. Also, some challenges, I mean, we need to change in case we grow those resources positively. The exploration, we need to change some of the infrastructure that we have there. Talking about roads, a state road that is going through the project. And Guanajuato is the one that we are trying to speed up. But also, as I mentioned, I mean, the... The challenge there is to access the veins at the level in which we have the economic generalization for Guanajuato. So, yes, you're right. I mean, it seems like the development pipeline is still not moving to the place that we would like. And that's why also the focus is on the brownfield project. And that is the one that we have at the site and some portion of our target 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 our full year of production, what we have on target for that year.

And I'm assuming the capex is also reflected in 2026, 2027, even if you haven't defined it exactly. Yes, it is. Okay, thanks a lot.

from Barclays. So 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? And then can I ask on the CapEx side, how much of your CapEx is denominated in Mexican peso versus U.S. dollar?

Okay. In terms of working capital, for the second half. You know, most of the increasing working capital that I just told you was due to a reduction in accounts receivables from Peñoles. So I don't think that will repeat itself in the second half. So I believe, you know, it would be clear during the second half. you won't see a reduction, I don't think, or any increase either. In terms of CapEx, that's your second question?

How much in the U.S.?

CapEx, in terms of CapEx, I would say all the parts 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. And in terms of actual equipment, pretty much everything is imported. So pretty much dollars, some euros.

Thanks. And then I just wanted to ask on your guidance on unit cost inflation, FX for the second half year over year, or half on half, whichever is easier for you.

In the second half, we don't see any major pressures in terms of increases in unit price of our index. So I would say it would be along the lines of what we just saw in the first half. the whole year, you know, something between 2 and 3%.

Any last?

Okay, sorry, I'm going to keep going. A couple of other ones are just on the buyout of the SilverStream 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 finished up the mine, essentially? Is that why the staff payment was so low?

what's basically the alternative.

Yeah, and then is it subject to a class one vote or is it not material enough?

It's not material enough.

Okay. Okay, that's it. Thank you very much.

Thanks for the morning, Richard Hatch from Berenberg. And a couple of clarification points. So just on the costs, so you did 674 million adjusted production costs in the first half. So should we therefore, I guess, pace those strengths a little bit, I think? So how should we be thinking about that going into the second half? Like a little bit higher, but still pretty well controlled?

I would say that that is the case. And like I said, we had a very favourable exchange, average exchange rate effect in the first half. Again, you know, in the second half, we had almost 20 pesos per dollar versus 1710 in the first half of 24, second half. The second half of 24, the exchange rate was 19.50 in the second half of 24. Currently, the exchange rate is around 18.8, 18.9. So, if it remains where it is, it would actually be a small revaluation, very small revaluation in the second half, which would take away a bit of the benefits that we had in the first semester. So, in other words, we're not expecting to have that benefit in the second half.

Thank you. It 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. Picks my heart rate down. But the H224 dividend was something that surprised the market very positively. You paid a lot of cash back to your shareholders. So 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 to 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. And as we mentioned before, our main objective and one that we invest across the cycles, I would say, is exploration. That's why we have the development pipeline. With the challenges that we mentioned, we would like to see those projects coming on stream earlier. But also, we are disciplined in the way we bring them into operations. We like to have operations with the quality of the current assets, so that's a part on the terms of an M&A. In the meantime, yes, I mean, we will continue to see that cash build up going on that north direction. And the exercise we do at your end and that we as a management team proposed to the board after looking at all what we have in front of us is our mines, of course, demand a fair amount of investment, most of them on the main systems. I mean, we need to do a lot of development, a lot of great boring ventilation and everything. Approximately 120 kilometers 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 reserves at our mines. And then the usual dividend policy returns for shareholders. And after we consider all of those needs, Yes, it's something that we can consider as well. It's on the special dividends we mentioned before.

Thank you. Last one is just on hereditary costs. Just generally operational performance is good, so congrats to both of the CRIs. Just on hereditary costs, 1371, all in sustaining costs. Daniel, you can keep that level.

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.

Helpful. 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? Well, I would leave that to my colleagues. 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 have 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. So 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, I mean, we... 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. So 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 of the previous year.

Thank you.

Hi, Dan from EBS. To clarify on the cash return, you previously spoke to wanting to and targeting a billion dollars of cash balance before you potentially distribute special dividends. You're talking 2.6 at the end of the year. Should we therefore assume 1.6 billion of distributions in the base case in the second half?

Well, I'm not sure about that answer. And I said $2.3 billion right here. I'm sorry. $2.3 billion. But 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 definitely, it's on the table. It's being considered. And in previous periods, we used to have only... as a development project to be developed. The kind of investment that we were seeing at those times were in the region of 400, 400 plus million. The projects that we see now in the pipeline are larger in capex, at least 40 CBO in the coming years. So that would be one aspect to have in the radar. and then one of as well. So, we have two in the following three to four years, and Rodeo and Tajitos, although lower CapEx numbers.

Okay, thanks. I just had one follow-up, I guess, related to that. Could you just run through where the indicative CapEx numbers sit for each of these growth projects on Squad 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. In Rodeo, we're spending 8.3. 8.3, 10 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 or so.

Previous estimation, however, we think is more likely to be under 450.

Updated that. Olisibo was in the region of 1 billion, probably. 1 billion, and we are optimizing that one. So, Tajitos, lower number than Rodeo. And Guanajuato, out of 500 million or so. That's our numbers. And of course, we will be, we would continue defining those topics in coming years. And then, coupling that information with the graph, I mean, right now, exploration, all of them, except Odisivo. And as we advance to pre-visibility, visibility 80, etc., I mean, you will see the CAPTEC 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 bias in the area around the ground? Yeah. Bias.

Bias, what we are finalizing right now, in terms of details, is to understand how much is the the recovery capex for pumping stations, energy, et cetera, we don't think it's going to be more than 60, 70 million in total to start, to restart the operation at Valles. In the case of what we call a raguda 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 range, but that's easy.

Peter, we have something in the link.

Okay. So, with that, we conclude this presentation, and we thank you for coming.