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REPORT FROM THE CHIEF EXECUTIVE
OFFICER:
FOURTH QUARTER 2004 |
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(Figures in millions of
constant pesos)
• In 2004, sales reached a record level of Ps16,767.6
(US$1,448.7 million), as did gross earnings at Ps4,505.4 (US$389.6
million).
• EBITDA and operating income rose 98.6% and 330.0%
over 2003.
• Production records were also reached in refined silver,
refined zinc, sodium sulfate and magnesium sulfate.
1.- EXECUTIVE SUMMARY
In fiscal year 2004, Peñoles reported record sales
of Ps16,767.6, equivalent to US$1,448.7 million, not counting
the results of metals and exchange-rate hedging.Gross earnings
totaled Ps4,505.4, equivalent to US$389.6, also a record high.EBITDA
was Ps3,023.6 and operating income was Ps1,856.6, rising 98.6%
and 330.0%, respectivelyNet earnings of Ps1,043.6 compare
very well against the loss of Ps160.4 in 2003.
These financial results were encouraged
by steady efforts to make operations more productive, which
resulted in a record level of refined silver production (80.5
million ounces), refined zinc (232,501 metric tons), sodium
sulfate (608,000 metric tons) and magnesium sulfate (28,100
metric tons), along with higher sales volume of magnesium
oxide (+44.1%), silver (+5.5%), zinc (+5.4%), magnesium sulfate
(+4.7%), lead (+3.1%) and sodium sulfate (+2.7%) than in 2003
Similarly, higher quotations on the metals
that the company mines, processes and sells had a favorable
impact on results.Gold prices averaged US$409.21 per ounce,
an increase of +12.6% over 2003, silver quotations averaged
US$6.68 per ounce, +36.6%, lead prices averaged US$0.4021
per pound and zinc US$0.4753 per pound, rising +72.1% and
+26.6%, respectively. As for chemical products, the price
of export sodium sulfate rose +11.4%, while domestic magnesium
oxide advanced +9.9%.
Additionally, a higher average exchange
rate of Ps11.2879 per dollar, which meant an average depreciation
of 4.64%, increased the value of sales when expressed in pesos.
All of these effects made up for a substantial
increase in the prices of Peñoles’ main inputs,
which rose as following in year-to-year terms: metallurgical
coke, +56.6%, mine steel +45.5%, explosives +20.1%, reactives
+16.3%, ammonia +15.7%, natural gas +10.4%, shipping +9.8%
and fuel oil +6.1%.
One outstanding note in production costs
was electrical energy, which began to be generated by Peñoles’
dedicated power plant starting on April 30; this lowered the
average cost of this important source of energy by 11.9% from
what the Federal Electricity Commission charges.
With more metal being purchased from outside
parties to complement the production from Peñoles’
own mines, and combined with higher metals prices and a higher
average exchange rate, the cost of metal rose over last year.Furthermore,
increase in metal prices meant more revenues from treatment
fees, because they had a significant impact on the price scale.
Note that although the tax provision was
higher than last year (+Ps290.3) because of an increase in
pretax income, deferred taxes benefited from the gradual reduction
in the tax rate from 32% to 28%.
Comparing the results for the fourth quarter
of 2004 with those of the third quarter of the same year and
the fourth quarter of the preceding year, we see a substantial
improvement, as follows:
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4Q04 |
YTD04 |
3Q04 |
4Q03 |
YTD03 |
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Sales |
$4,290.1 |
$16,564.1 |
8.5 |
10.3 |
22.5 |
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Gross earnings |
1,229.5 |
4,505.4 |
16.1 |
33.5 |
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EBITDA |
847.2 |
3,023.6 |
22.4 |
60.2 |
98.7 |
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Operating income |
557.1 |
1,856.6 |
40.8 |
111.5 |
330.2 |
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Total financing cost |
(7.4) |
192.8 |
n/a |
n/a |
(65.5) |
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Net income |
392.0 |
1,043.6 |
80.4 |
1,461.8 |
n/a |
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Due to lower grade in the bodies of ore exploited
in 2004 at Francisco I. Madero (zinc – Zacatecas), the
company made the conservative decision to adjust the book
value of the assets by Ps252.0 (1.1% of the group’s
total assets).The adjustment resulted in a reduction of Ps83.0
in deferred income tax for the year; as the result of an intense
exploration program, however, the company now has evidence
of an improvement in the grades that were previously lowered.
Once these studies are confirmed, a detailed analysis will
be conducted to see if the book value of the assets reflects
the present value of the expected cash flow.
The following section discusses the company’s
operating results compared to the previous year.
In the mining division, the production of
metallic content (gold, silver, lead and zinc) was affected
by various factors, among them:
* the shutdown of operations at El Monte
(zinc - Hidalgo) and Las Torres (gold-silver – Guanajuato)
due to a depletion of reserves in 2003, so these units did
not produce at all in 2004;
* lower production at Naica (silver-lead-zinc – Chihuahua)
and Francisco I. Madero due to lower grade in the cuts exploited
in 2004; and
* a programmed 10-day shutdown of the Fresnillo unit (silver
– Zacatecas) to interconnect equipment as part of a
capacity expansion
Nevertheless, the reduction in metallic content was offset
by:
* the expansion of capacity at Fresnillo, which concluded
in September 2004, which will raise silver production from
31.6 to an estimated 35.7 million ounces;
* The increase in capacity at Sabinas (zinc – Zacatecas)
which concluded in November 2004, and should allow an increase
in zinc production from 30,350 to 34,750 metric tons, and
from 3.3 to 4.0 million ounces of silver; and
* Better grade as new mineralized zones at Francisco I. Madero
and Naica are developed and exploited.
With regard to the Met-Mex metallurgical
complex (Coahuila), the lead foundry and lead-silver refinery
treated a higher volume of concentrates than the year earlier,
rising by +3.2% and +2.8%, respectively.Due to the scarcity
of concentrates worldwide, the complex treated a high volume
of material with substantial content of impurity, but thanks
to adjustments in previous years, the tonnage received was
treated with less difficulty in the process.Thus, silver production
rose +4.5% to a record level of 80.5 million ounces. Gold
production totaled 756,083 ounces, -21.2% lower due to lower
receipts of materials rich in precious metals, due to heavy
competition from refineries in Europe and Asia for this type
of material. Lead production totaled 131,619 metric tons,
rising 1.5%.
The volume of concentrates treated at the
zinc refinery rose –7.8% due to a greater availability
of concentrates, process improvements and the continuous supply
of electricity from the TEP.Due to these elements, zinc production
hit a record level of 232,501 metric tons.
In the company’s inorganic chemicals
business, the Química del Rey plant in Coahuila made
more efficient use of brine and reached record production
levels of sodium sulfate (608,000 metric tons) and magnesium
sulfate (28,100 metric tons).In magnesium oxide,increased
demand from the steel industry and the weakness of the dollar
against the euro resulted in a +36.1% rise in production,
to 73,313 metric tons.
In December 2004, the subsidiary Compañía
Minera La Parreña, S.A. de C.V. (La Parreña),
wholly owned by Peñoles and holder of theMilpillas
product, signed a credit contract for US$155 million, with
a syndicate of three banks. The funds will go to building
and developing the Milpillas copper project in the state of
Sonora, Mexico.The credit was obtained as a project financing
loan, in which Grupo Peñoles guarantees construction
of the project and operation according to a feasibility study.
The placement of this financing was considered successful,
since the banks’ interest in participating in the loan
was more than twice the amount offered.
Even with this loan, the company’s
strong results for the year allowed it to lower its debt level:
total debt dropped from 34.9% to 32.9% of total capitalization.
At the close of the period, Peñoles
reported total debt equivalent to US$503.7 million, an increase
of US$27.6 million. The current amount of debt consists mostly
of:
* a private offering in 1997 for US$380.0
million, at a fixed rate of 8.25% and which will begin being
repaid in 2006 with quarterly payments of US$15.2 million;
and
* the first draft of US$80 million on a loan obtained to build
the Milpillas copper project.
Looking at cash flow, the amount of resources generated by
operations rose sharply by +205.3%, from Ps729.4 to Ps2,227.0.These
resources went mainly to the acquisition of property, plant
and equipment—mainly the Milpillas project, expansion
of Fresnillo, Sabinas, and La Ciénega, and Met-Mex—
to payment of short-term financing, and to dividend payments.
Peñoles' most important investment projects continue
on schedule. These include:
(i) the expansion of capacity at the La Ciénega mine
(gold - Durango) from 133,510 to 164,890 ounces of gold a
year (+23.5%) to begin operations in the first half of 2005;
and
(ii) the construction of the Milpillas copper project in Sonora,
which will start up in the fourth quarter of 2005, and is
to date 61.0% complete. The mien will turn out an average
of 55,600 metric tons of fine copper per year.
The number of personnel at year-end 2004,
excluding workers in the water and railway businesses, came
to 6,842: 4,578 unionized workers and 2,264 non-unionized
workers.In comparison to 2003, the work force grew by 303,
equivalent to 4.6%.
In February 2005, Peñoles and its
workers revised the collective labor contract and proposals
for wage and benefit increase for the unionized workers of
Met-Mex Peñoles and the Naica mining unit. After intense
negotiations, Peñoles agreed with the miners' union
on a wage increase of 6%, plus 2% in benefits and a 2% lump
sum payment.
For the third year in a row, Industrias
Peñoles received the distinction of Socially Responsible
Company from the MexicanCenter for Philanthropy (CEMEFI).In
addition, La Herradura received a recognition for "Best
Practices" from the CEMEFI for safety and environmental
measures.
Bismark received accreditation from the
Ministry of Labor and Social Planning in its Work Administration
and Safety system, having demonstrated compliance with regulations
on work safety and hygiene and accident prevention.
Fresnillo was awarded third place in the
National Electrical Energy Savings Prize, in the category
of Large Corporations, from the Federal Electricity Commission
(CFE).
Naica and Química del Rey received
the "Silver Helmet" award from the Mexican Mining
Chamber for their safety records.
Aware of the importance of complying with
environmental regulations, at the close of the year, 16 of
Peñoles' 19 plants--including two Under-Departments
of Exploration--have obtained ISO 14000 certification, and
12 out of 16 plants have received Clean Industry certificates
from SEMARNAT.
2.- ECONOMIC ENVIRONMENT AND METALS
PRICES
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4Q04 |
3Q04 |
4Q03 |
YTD04 |
YTD04 |
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Inflation in the period(%) |
1.76 |
1.71 |
1.64 |
5.19 |
3.98 |
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Exchange
rate (pesos/dollar): |
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Close |
11.2648 |
11.4106 |
11.2360 |
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Average |
11.3272 |
11.4549 |
11.1887 |
11.2879 |
10.7873 |
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Peso devaluation
(ah the close): |
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In the period |
+0.26 |
+8.96 |
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Devaluation-inflationspread
(points): |
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In the period |
-4.93 |
+4.98 |
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Quotations |
Gold
( US$/Oz) |
Silver
( US$/Oz) |
Lead
( US$/lb) |
Zinc
( US$/lb) |
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1st. quarter 2003 |
352.13 |
4.66 |
20.82 |
35.65 |
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2nd. quarter 2003 |
346.74 |
4.59 |
20.70 |
35.09 |
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3rd. quarter 2003 |
363.24 |
5.01 |
23.17 |
37.25 |
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4th. quarter 2003 |
391.93 |
5.28 |
28.75 |
42.19 |
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Average 2003 |
363.51 |
4.89 |
23.36 |
37.54 |
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1st. quarter 2004 |
408.44 |
6.71 |
38.30 |
48.54 |
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2nd. quarter 2004 |
393.14 |
6.25 |
36.78 |
46.61 |
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3rd. quarter 2004 |
401.29 |
6.49 |
42.29 |
44.44 |
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4th. quarter 2004 |
433.97 |
7.25 |
43.48 |
50.51 |
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Average 2004 |
409.21 |
6.68 |
40.21 |
47.53 |
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%Chge. 4Q004 vs 4Q003 |
+10.7 |
+37.2 |
+51.2 |
+19.7 |
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%Chge.4Q004 vs 3Q004 |
+8.1 |
+11.7 |
+2.8 |
+13.7 |
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%Chge. 2004 vs 2003 |
+12.6 |
+36.6 |
+72.1 |
+26.6 |
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Mining Division share of sales |
19.8% |
41.4% |
6.7% |
28.2% |
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All metals prices rose from 2003 to 2004.
Precious metals were influenced by the dollar's weakness against
the Euro, low interest rates in the United States, the ongoing
threat of terrorist attacks, and the high price of oil. Base
metal prices rose because of expectations of worldwide economic
recovery, lower availability due to a lack of investment in
preceding years, and heavy demand from China.
3.- OPERATING RESULTS
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4Q03 |
YTD03 |
3Q04 |
4Q04 |
YTD04 |
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Mining Division: |
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Ore milled |
(Mton) |
1,838 |
7,548 |
1,788 |
1,963 |
7,323 |
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Stacked deposited (a) |
(Mton) |
1,996 |
8,319 |
2,057 |
2,139 |
8,555 |
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Gold |
(kg) |
2,656 |
10,687 |
2,568 |
2,673 |
10,508 |
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Silver |
(ton) |
370.5 |
1,506.1 |
316.9 |
372.6 |
1,382.3 |
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Lead |
(ton) |
19,131 |
81,266 |
12,070 |
13,801 |
54,200 |
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Zinc |
(ton) |
57,453 |
235,120 |
52,327 |
52,163 |
209,202 |
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(a) La Herradura: open-pit
mine. |
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Metals & Chemicals Division: |
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Gold |
(kg) |
8,144 |
29,838 |
5,191 |
5,489 |
23,517 |
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Silver |
(ton) |
640.0 |
2,396.3 |
617.0 |
612.7 |
2,503.1 |
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Lead |
(ton) |
33,798 |
129,712 |
31,449 |
31,456 |
131,619 |
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Zinc |
(ton) |
58,197 |
218,457 |
62,446 |
62,473 |
232,501 |
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Sodium sulfate |
(ton) |
150,500 |
586,100 |
155,000 |
151,500 |
608,000 |
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Magnesium oxide |
(ton) |
16,670 |
53,885 |
22,392 |
20,010 |
73,313 |
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Ammonium sulfate |
(ton) |
47,216 |
171,785 |
54,844 |
52,044 |
224,622 |
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Magnesium sulfate |
(ton) |
6,850 |
27,100 |
8,700 |
4,300 |
28,100 |
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Mining Division (metallic content
in concentrates and other materials):
*Change 4Q04 vs. 4Q03:
- Lead (-27.9%): lower grade and milled ore at Naica.
- Zinc (-9.2%): lower grade at Bismark, Sabinas, Naica and
Fresnillo.
*Change 4Q04 vs. 3Q04:
- Silver(+17.6%): higher milled ore at Fresnillo.
- Lead(+14.3%): higher milling at Fresnillo and higher grade
at Naica.
* Change 4Q04 vs. 4Q03 (whole year):
- Silver (-8.2%): the shutdown of the Las Torres and El Monte
units in 2003 , meaning no production in 2004, and lower grade
at Fresnillo, Tizapa, Naica and Sabinas.
- Lead (-33.3%): lower milling and grade at Naica, and lower
grade at Francisco I. Madero and Sabinas.
- Zinc (-11.0%): lower milling and grade at Naica, lower grade
at Francisco I. Madero, and the shutdown of El Monte.
Metals and Chemicals Division (production
of refined metal):
*Change 4Q04 vs. 4Q03:
- Gold (-32.6%): lower receipts of content-rich semi-processed
materials.
- Lead (-6.9%): lower entry of content in concentrates.
- Zinc (+7.3%): higher entries of content in concentrates
from third parties, and continuity of operations.
- Magnesium oxide(+20.0%): to meet rising demand for refractory-grade
and caustic oxide from South America, the United States, and
Europe, as well as higher domestic sales.
- Ammonium sulfate (+10.2%): higher demand from the primary
and secondarymarkets, and more inventory available at the
Met-Mex foundry.
- Magnesium sulfate (-37.2%): as part of an operating strategy.
*Change 4Q04 vs. 3Q04:
- Gold (+5.7%): higher direct entries of content-rich semi-processed
minerals to the refinery.
- Magnesium oxide(-10.6%): lower demand for refractory and
caustic grade.
- Magnesium sulfate (-50.6%): as part of an operating strategy.
* Change 4Q04 vs. 4Q03 (whole year):
- Gold (-21.2%): lower direct entries of content-rich semi-processed
minerals to the refinery.
- Zinc (+6.4%): higher entries of raw material from third
parties, and continuous operation.
- Magnesium oxide(+36.1%): higher demand for domestic and
export refractory grade, and for domestic caustic grade.
- Ammonium sulfate (+30.8%): higher demand from the agricultural
sector and better inventory controls at Met-Mex.
4.- FINANCIAL RESULTS
A) Comparison of annual results
for 2004 vs. annual results for 2003:
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(Millions
of pesos) |
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YTD04 |
YTD03 |
Chge. ($) |
% Chge. |
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Net sales (*) |
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$16,564.1 |
$13,524.1
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3,040.0 |
22.5 |
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Gross income |
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4,505.4 |
2,953.9
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1,551.5 |
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Gross margin |
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27.2% |
21.8% |
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EBITDA |
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3,023.6 |
1,521.8 |
1,501.8 |
98.7 |
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EBITDA margin |
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18.3% |
11.3% |
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Operating income |
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1,856.6 |
431.6 |
1,425.0 |
330.2 |
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Operating margin |
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11.2% |
3.2% |
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Net income |
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1,043.6 |
(160.4) |
1,204.0 |
n/a |
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Net margin |
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6.3% |
(1.2%) |
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(*) Includes metal and exchange-rate hedging
gains.
The primary changes are discussed below:
Higher Net sales, +Ps3,040.0 (+22.5%) rising
from Ps13,524.1 to Ps16,564.1. The change breaks down as follows:
a) Higher prices +Ps3,054.1, for virtually
all of the products sold;
b) Higher average exchange rate +Ps536.7,
(Ps11.2879 vs. Ps10.7873 pesos per dollar);
c) Lower metals hedging and exchange-rate
losses, +Ps42.3;
d) Lower sales volume -Ps85.5, primarily
due to lower gold sales because of less availability of finished
product, offset in part by higher sales of silver, lead, zinc,
magnesium oxide and concentrates at the Mining Division sold
to third parties;
e) Effects of restating figures in constant
pesos of December 31, 2004: -Ps507.6
In dollar terms, net sales came to US$1,431.2
million, made up of (billed) sales of US$1,448.7 and hedging
losses of US$17.5 million.
The +Ps1,488.6 (+14.1%) increase in the
cost of goods sold was caused by:
a) Higher production costs, +Ps492.9, due
to a rise in the cost of energy (an increase in the unit cost
of coke and higher consumption of electrical energy and diesel
fuel, higher costs on raw materials (ammonia) at Fertirey)
due to increased production and the fact that its price is
pegged to natural gas; outside contractors working on capacity
expansions and development at the Mining Division, and higher
costs on direct materials at the Mining and Metals Division;
b) Higher cost of metals--net of treatment
fees--+Ps1,088.9, primarily due to the rise in metals prices,
a higher average exchange rate, and an increased volume of
metals purchased from third parties; and
c) Inventory movements, consolidation and
restatement effects, -Ps93.2.
Because of the growth of Net sales (+Ps3,040.0)
and the slower growth in the cost of goods sold (+Ps1,488.6),
gross earnings totaled Ps4,505.4 rising by +Ps1,551.5 (+52.5%),
and bringing the gross margin (in proportion to sales) from
21.8% to 27.2%.
Operating expenses--excluding depreciation--totaled
Ps1,481.8, an increase of +Ps49.6 (+3.3%) due to:
a) Higher exploration expenses +Ps99.3,
mainly for the more intense pace of exploration in the zones
surrounding Fresnillo, La Herradura and La Ciénega;
and
b) Lower SG&A expenses, -Ps49.7.
With the advance in gross income (+Ps1,551.5),
which more than offset the rise in operating expenses (+Ps49.6),
EBITDA came to Ps3,023.6 rising by +Ps1,501.8 (+98.7%), and
bringing the EBITDA margin (EBITDA/sales) to 18.3%, well above
last year's margin of 11.3%.
Total Financing Cost was Ps192.8, declining
-Ps559.2 from 2003; the change of -Ps366.7 breaks down as
follows:
a) Lower foreign-exchange losses resulted
in an improvement of +Ps311.9 because the peso devalued only
0.26% in 2003, compared to 8.96% in 2003;
b) Lower interest expense, +Ps59.2; and
c) Lower monetary position effect, -Ps4.7.
The "other expenses (revenues"
line showed an outflow of Ps328.3, compared to the Ps143.9
in the previous year. The higher charge in 2004 was primarily
the result of an adjustment in the book value of assets at
Francisco I. Madero; offset partly by the sale of shares in
Minera Metalline, revenues from a penalty paid by operators
of the Peñoles thermoelectric plant for delayed startup,
and a recovery of tax and insurance payments.
Income tax and profit-sharing (net) showed
a charge of Ps307.0 compared to a credit of Ps47.7 in the
same period of last year. This change is due to the recognition
of a pretax profit of Ps1,335.5 in 2004, compared to a pretax
loss of Ps271.6 in 2003.
Equity in the earnings of associates dropped
by -Ps16.3, chiefly because of the recognition of lower earnings
from companies in which Peñoles owns a minority stake.
Meanwhile, the minority interest line reflected
a higher gain in 2004, Ps52.1 compared to Ps20.1 in 2003.
The gains were due to operating improvements at the companies
Tizapa and Penmont, primarily the result of higher metals
quotations and a higher average exchange rate.
B) Comparison of results for 4Q04 vs.4Q03:
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(Millions
of pesos) |
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4Q04 |
4Q03 |
Chge. ($) |
% Chge. |
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Net sales (*) |
|
$4,290.1 |
$3,888.0
|
402.1 |
10.3 |
|
|
| |
Gross income |
|
1,229.5 |
921.0
|
308.5
|
|
|
|
| |
Gross margin |
|
28.7% |
23.7% |
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|
|
|
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EBITDA |
|
847.2 |
528.9 |
318.3
|
60.2 |
|
|
| |
EBITDA margin |
|
19.7% |
13.6% |
|
|
|
|
| |
Operating income |
|
557.1 |
263.4 |
293.7 |
111.5 |
|
|
| |
Operating margin |
|
13.0% |
6.8% |
|
|
|
|
| |
Net income |
|
392.0 |
25.1 |
366.9 |
1,461.8 |
|
|
| |
Net Margin |
|
9.1% |
0.6% |
|
|
|
|
|
|
|
|
(*) Includes metal and exchange-rate hedging
gains.
The primary changes are discussed below:
Net sales of Ps4,290.1 rose +Ps402.1 (+10.3%)
for the following reasons:
a) Higher prices +Ps775.0, on all the products sold;
b) Higher average exchange rate (Ps11.3272 vs. Ps11.1887 pesos
per dollar) +Ps48.0;
c) Lower metals hedging and exchange-rate losses, +Ps83.6;
d) Effect of restating results in constant pesos of the current
quarter, -Ps219.9; and
e) Lower sales volume -Ps284.6, primarily of gold, silver
and lead.
In dollar terms, sales totaled US$377.3 million, made up of
(billed) sales of US$378.0 million and hedging losses of US$0.67
million.
The cost of goods sold rose by +Ps93.6,
for the following reasons:
a) Higher production costs, +Ps188.0 (+13.3%),
due to increased consumption and operating material costs
at the Mining Division, higher costs on coke, and increased
consumption of diesel; an increase in maintenance and repair
costs at the Mining Division;
b) Higher treatment fees -- net of metals
costs--, +Ps65.3, due to a rise in metals quotations and a
higher average exchange rate; and
c) Inventory movements, consolidation and
restatement effects, -Ps29.1.
Because the increase in sales, +Ps402.1,
was greater than the increase in the cost of goods sold, +Ps93.6,
gross earnings increased by +Ps308.5, and the gross margin
(as a percentage of sales) rose from 23.7% to 28.7%.
Operating expenses--excluding depreciation--came
to Ps382.4, a decline of -Ps9.7 due to:
a) Lower SG&A expenses, -Ps37.9; and
b) Higher exploration expenses +Ps28.3, mainly at Fresnillo
and La Herradura, offset slightly by lower exploration at
Pecobre and in South America.
With gross earnings rising by (+Ps308.5) and a decline in
operating expenses (-Ps9.7), EBITDA rose to Ps847.2, up +Ps318.3
(+60.2%), and the EBITDA margin went from 13.6 to 19.7%.
Because of the increase in EBITDA (+Ps318.3), offset in part
by higher depreciation charges (+Ps24.6), Operating income
rose +Ps293.7, to13.0% of sales.
In the period in question, total financing
cost was a benefit of Ps7.4, compared to a charge of Ps129.5
in the fourth quarter of last year. The change breaks down
as follows:
a) Foreign-exchange gains of Ps17.6, compared
to the 4Q03 loss of Ps100.7 due to a higher devaluation of
the peso against the dollar in the fourth quarter of last
year;
b) Lower interest expense, -Ps33.8; and
c) Lower monetary position effect, -Ps15.1.
The "other expenses" line contains
a charge of Ps310.3, compared to Ps61.7 in the fourth quarter
of last year. The higher expense in 2004 can be attributed
to the entry of adjustment in the book value of assets at
Francisco I. Madero.
The income tax and profit-sharing (net)
line shows a credit of Ps114.0, compared to a charge of Ps43.3
in the same period of last year. The change is due to the
impact on deferred taxes resulting from a change in the income
tax rate.
Equity in the results of associate companies
totaled Ps36.5, rising by +Ps24.6, due primarily to the recognition
of higher earnings from the companies in which Peñoles
has a minority stake.
The minority interest line shows income
of Ps12.6, compared to Ps15.6 in the same quarter of last
year. The reduction in earnings for this quarter was due to
lower results from Minera Penmont (La Herradura).
C) Comparison of results for 4Q04 vs. 3Q04:
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(Millions
of pesos) |
|
4Q04 |
3Q04 |
Chge. ($) |
% Chge. |
|
|
| |
Net sales (*) |
|
$4,290.1 |
$3,953.8 |
336.3 |
8.5 |
|
|
| |
Gross income |
|
1,229.5 |
1,059.1 |
170.4 |
|
|
|
| |
Gross margin |
|
28.7% |
26.8% |
|
|
|
|
| |
EBITDA |
|
847.2 |
692.0 |
155.2 |
22.4 |
|
|
| |
EBITDA margin |
|
19.7% |
17.5% |
|
|
|
|
| |
Operating income |
|
557.1 |
395.5 |
161.6 |
40.8 |
|
|
| |
Operating margin |
|
13.0% |
10.0% |
|
|
|
|
| |
Net income |
|
392 |
217.3 |
174.7 |
80.4 |
|
|
| |
Net Margin |
|
9.1% |
5.5% |
|
|
|
|
|
|
|
|
(*) Includes metal and exchange-rate hedging
gains.
The primary changes are discussed below:
Net sales (including hedging activities)
were reported at Ps4,290.1, rising by +Ps336.3 (+8.5%), breaking
down as follows:
a) Higher prices +Ps362.0, primarily of
silver, zinc, gold and lead;
b) Higher volume +Ps86.1, due to an increase in the sales
volume of zinc, gold, lead, concentrates sold by the Mining
Division to third parties, and in the water business;
c) Lower losses from derivative trading (futures and options)
on metals and the exchange rate +Ps13.6;
d) Lower average exchange rate -Ps44.2(Ps11.3272 vs. Ps11.4549
pesos per dollar); and
e) Effects of restating the results in constant pesos of the
current quarter and others, -Ps81.2;
The cost of goods sold rose by +Ps165.9 chiefly because of
a higher volume of metal purchased from third parties(+Ps96.3),
higher production costs (+55.5) and inventory movements and
restatement effects (+Ps52.1); partly offset by higher volume
and revenues from the treatment of concentrate for third parties,
in comparison to the immediately preceding quarter (+Ps38.0).
The increase in sales (+336.3) outpaced the rise in the cost
of goods sold (+Ps165.9), so gross earnings rose by +Ps170.4,
raising the gross margin (in proportion to sales) from 26.8%
to 28.7%.
Operating expenses--excluding depreciation
charges--totaled Ps382.4, an increase of +Ps15.3 caused by:
a) Higher exploration expenses, +Ps13.7, mainly at Fresnillo
and La Herradura, in connection with geology studies; and
b) Higher SG&A expense, +Ps1.6.
Because of the increase in gross income
(+Ps170.4) and the rise in operating expenses (+Ps15.3), EBITDA
went from Ps692.0 to Ps847.2, an increase of +Ps155.2, and
the EBITDA margin rose from 17.5 to 19.7% of sales.
Total Financing Cost was a benefit of Ps7.4
in the quarter, compared to a charge of Ps29.3 in the previous
quarter; the +Ps36.7 change can be explained as follows:
a) Higher foreign-exchange gains, +Ps19.3
due to the peso's appreciation against the dollar (-Ps 0.1458
pesos per dollar); and
b) A reduction of -Ps17.2 in interest expense.
The "other expenses" line contained
a charge of Ps310.3, vs. Ps2.4 in the third quarter.The higher
charge was caused by the change in the book value of Francisco
I. Madero.
The income tax and profit-sharing provision
resulted in a credit of Ps114.0, compared to a charge of Ps152.2
in the immediately preceding quarter. The fourth-quarter credit
was the result of the impact of a change in the tax rate,
on deferred taxes.
Equity in the earnings of associate companies
rose by +Ps19.3, due, again, to the recognition of higher
income by the companies in which Peñoles owns a minority
stake.
Minority interest resulted in gains of Ps12.6,
compared to Ps11.4 in the preceding quarter, due basically
to improved operating results f4rom the mining and water companies.
5.- PROJECTS.
*Sabinas (zinc / Zacatecas): the 21% expansion
of milling capacity is complete, raising the total from 950,000
to 1,150,000 metric tons of ore per year. This expansion will
bring zinc production to 34,750 metric tons and silver to
4.0 million ounces a year; investment in this project totaled
US$3.7million.
*La Ciénega (gold / Durango): expansion
of milling capacity by 34.6%, from 520,000 to 700,000 metric
tons a year.With this expansion, gold production will rise
from 133,510 to 164,890 ounces a year. The required investment
will total US$14.4 million, and the project is expected to
start up operations in the second quarter of 2005.
*Milpillas (copper / Sonora): construction
work continued on this project.The primary equipment was received
and installation has begun. The project is expected to require
a total investment of US$203.0 million, and is slated for
startup in the fourth quarter of 2005, with a production capacity
of 55,000 metric tons a year (average) of cathode copper.To
date the project is 61.0% complete.
6.- SAFETY, ENVIRONMENTAL ASPECTS AND
COMMUNITY RELATIONS:
The following highlight the primary events
of the year in the area of environment, safety and community
relations:
- Bismark received accreditation from the
Ministry of Labor and Social Planning in its Administration
and Work Safety System, having demonstrated its compliance
with work safety and hygiene and accident prevention regulations.This
level of self-management in security is the first granted
to any miningunit in Mexico.
- Naica was awarded the Silver Helmet Ing.
Jorge Rangel Zamorano prize from the Mexican Chamber of the
Mining Industry (CAMIMEX) for the best safety record in underground
mining, withmore than 500 workers.
- La Herradura received the "Best Practices"
recognition from CEMEFI for its "Holistic Focus on Business
Social Responsibility," which covers safety and environmental
aspects.
- At Fresnillo, the "Los Jales"
ecological park was completed and opened.
- The following plants obtained ISO 14001
certification in the year: La Ciénega, La Herradura,
Naica, Sabinas, Tizapa, Aleazín, Bermejillo, Met-Mex
(lead foundry, lead-silver refinery, electrolytic zinc refinery),
Fertirey, Química del Rey, Terminar, and two Under-Departments
of Exploration.
- Plants that obtained "clean industry"
certification: Bismark, Francisco I. Madero, Fresnillo, La
Ciénega, La Herradura, Naica, Sabinas, Tizapa, Bermejillo,
Fertirey, Aguakan and the Coahuila - Durango line.
- Maintenance to closed mines continued
at: La Negra, Rey de Plata, Sultepec, Talpa, Cuale, and Las
Torres.
- Química del Rey earned the "Silver
Helmet" recognition granted annually by the Mexican Mining
Chamber by ranking first in the category of plants and foundries.
- Química del Rey held its third
Community Week, holding social, cultural and sports events;
and the fourth annual 10-kilomter "Desert Challenge"
race, with more than 500 runners participating.
- At Química del Rey, the first Ecological Cycling
Tour was held, traveling from La Esmeralda to Laguna del Rey.
About eighty bicycle enthusiasts--boys, girls, parents and
guests--attended.
- Initiatives with Fondo Unido were extended
to Bismark and Química del Rey, joining Met-Mex, SIPSA
Torreón, Fresnillo, Fco. I. Madero, Tizapa Sabinas
and La Herradura.
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