GOLD
koz
SILVER
Moz
LEAD
kt
ZINC
kt
COPPER*
kt
* Includes copper cathodes.
Contribution by mine
%
GOLD
SILVER
LEAD
ZINC
COPPER*
* Includes copper cathodes.
At the close of 2020, Peñoles had four underground mining units operating in Mexico, producing zinc, lead and copper concentrates: Velardeña in Durango; Sabinas in Zacatecas; Capela in Guerrero—whose productive life began this year—and Tizapa in the State of Mexico, in which the company owns a 51% stake.
Operations at the Madero mine in Zacatecas and the Milpillas unit in Sonora were indefinitely suspended in April due to a steep drop in zinc and copper prices combined with high operating costs and low grades. Milpillas will continue producing copper cathodes from the ore deposited in its leaching pads. Also, and as planned, after 28 years of uninterrupted operation, we began the process of closing down the Bismark unit in Chihuahua, due to depletion of its reserves.
We also consolidated the production of Fresnillo plc, a subsidiary that produces gold and silver concentrates, dorés, precipitates and other materials in seven mines: Fresnillo and Saucito, in Zacatecas; San Julián, in Chihuahua; Ciénega and San Ramón—satellite—in Durango, all of them underground mines; and Herradura and Noche Buena, two open-pit mines in Sonora.
All together, these mines position us as Mexico’s largest producer of metal zinc and lead content. Furthermore, thanks to Fresnillo plc, we are the leading silver producer in the world and the largest gold producer in Mexico.
Actions in connection with COVID-19
All of our mining operations strictly followed internal protocols and the guidelines established by the Mexican Social Security Institute (IMSS) and the Ministry of Labor and Social Planning (STPS) to protect employee health. We obtained authorization to work according to the Sanitary Safety Protocol established by government agencies, and the IMSS awarded the company its Sanitary Safety distinction in recognition of our compliance with guidelines to control contagion.
Both the vulnerable personnel and administrative staff worked under the work-from-home scheme.
We supported communities neighboring our operations with donations of 2,747 packages of basic food and supplies, 36,300 face masks and 1,169 containers of antibacterial gel, with a total value of Ps. 2.6 million. We also engaged ten physicians from UNAM to provide medical services and, in coordination with the authorities, we held campaigns to promote the sanitary measures necessary to prevent contagion.
We donated 50 Philips model E30 ventilators to the governments of Chihuahua and Guerrero in order to strengthen their medical infrastructure.
Two community committees were created during the year: one at Capela, in which a council of inhabitants from the mining region of Tehuixtla, Guerrero was formed to follow up on social infrastructure projects that would benefit neighboring communities; and the San Martín Health Committee in Sombrerete, Zacatecas, involving the Sabinas unit, in support of COVID-19 prevention actions.
Production and performance
Consolidated mining production (including 100% of payable production by Fresnillo plc) in 2020, and the change against the previous year, was as follows:
2020 | 2019 | % chge. | |
---|---|---|---|
Ore milled and deposited (Mt) | 44.0 | 55.5 | -20.7 |
Gold (oz) | 824,087 | 910,871 | -9.5 |
Silver (koz) | 62,551 | 62,325 | 0.4 |
Lead (t) | 86,420 | 84,332 | 2.5 |
Zinc (t) | 288,072 | 292,291 | -1.4 |
Copper (t) | 8,969 | 8,806 | 1.8 |
Copper cathodes (t) | 12,444 | 22,488 | -44.7 |
The volume of ore milled and deposited was 44.0 million metric tons, 20.7% less than in the previous year due to pandemic-related restrictions and the suspension of operations at Madero, Milpillas and Bismark. Production at Herradura and Noche Buena was also affected, since in the state of Sonora, public health restrictions were extended to open pit mines. For this reason, gold production decreased by 86,785 ounces, or 9.5% compared to the previous year.
Silver production—62.6 million ounces—was similar to that of the previous year, supported by volume at Capela—which began operations in 2020—, the development ore from the Juanicipio project—which was processed at the Fresnillo plant—, and higher head grades at San Julián, Fresnillo, and Tizapa; the latter, in addition to improvements in recovery. These units offset lower production at Saucito and Sabinas due to a decline in volume processed and lower grades; at Velardeña, due to a lower head grade; Herradura, due to lower volume; and shortfalls at Madero and Bismark, resulting from the suspension of their operations.
The production of lead in concentrates grew slightly—2,070 metric tons—due to the contribution from Capela and the higher head grades obtained in Saucito, Ciénega, Sabinas and Tizapa, which offset lower grades and recoveries at Velardeña and San Julián, in addition to the absence of production from Madero and Bismark, which were out of commission for the entire period.
Production of zinc content dropped slightly—4,291 metric tons—due to the lack of production from Madero and Bismark and, to a lesser extent, lower head grades at San Julián. However, these effects were almost completely offset by the production of Saucito, Fresnillo, Sabinas and Tizapa, all four with higher grades; Velardeña, with a higher volume of ore milled and processed, and the production from the new Capela unit.
Regarding copper in concentrates, the output from Capela and Velardeña offset the lower volume from Bismark, Madero, Sabinas and Tizapa; the latter two also reported lower head grades and metallurgical recoveries. Milpillas produced a lower amount of cathodic copper because of the suspension of operations, although the ore deposited in the leaching pads will continue to be processed to produce cathodes, until it is exhausted.
Mining unit highlights
Velardeña (zinc)
Production | 2020 | 2019 | % chge. |
---|---|---|---|
Milled ore (kt) | 2,688 | 2,441 | 10.1 |
Content | |||
Gold (oz) | 4,743 | 4,979 | -4.7 |
Silver (koz) | 813 | 890 | -8.7 |
Lead (t) | 4,450 | 5,257 | -15.4 |
Zinc (t) | 85,902 | 82,482 | 4.1 |
Copper (t) | 3,042 | 2,498 | 21.8 |
This year, a work program was drawn up to stabilize plant operations, which was optimized to 8,000 metric tons a day of milling and flotation, with which the volume of ore milled and processed hit record highs for the seventh year in a row. Due to this and to improved recoveries, metal contents of zinc and copper were higher than the production in 2019. This was not the case with gold, silver and lead, however, where production declined due to lower head grades in the ore bodies mined and lower metal recoveries.
Preparation work was carried out in the mine which increased the surface area to produce an additional 125,000 metric tons a year, guaranteeing a full year of extraction.
Work on accessing La Industria deposit continued, now with 823 meters completed and the investment of US$ 2.6 million in development work and the purchase of specialized equipment. This deposit represents 1.7 million metric tons of reserves, with average grades of 235g/t of silver and 3.2% lead. We expect the necessary work to be completed and extraction of ore to begin in the third quarter of 2021.
Improvement in 2019 safety indicators earned Velardeña the Silver Helmet distinction in the “Underground mine with more than 500 workers” category from the Mexican Mining Chamber.
Investment in 2020, expressed in millions, totaled US$ 8.3, the largest of which were the adjustments to the optimization of the processing plant (US$ 1.3), development work at La Industria (US$ 2.0) and US$ 1.4 in machinery and equipment purchases to replace two jumbo drills and a scoop tram, among others. This unit also obtained a US$ 1.2 million benefit by maximizing the useful life of the mechanical components for diesel equipment, recovering electrical cable from the mine for reuse, and electrical equipment acquired from units where operations were suspended, which resulted in a gain of US$ 0.7.
Sabinas (polymetallic: zinc-lead-silver-copper)
Production | 2020 | 2019 | % chge. |
---|---|---|---|
Milled ore (kt) | 1,243 | 1,289 | -3.6 |
Content | |||
Silver (koz) | 2,780 | 2,850 | -2.5 |
Lead (t) | 5,187 | 4,936 | 5.1 |
Zinc (t) | 14,135 | 12,801 | 10.4 |
Copper (t) | 3,415 | 3,666 | -6.8 |
There was some difficulty however, in attaining the projected grades of silver and copper, due to the intrinsic and operating dilution of the ore in the veins and the mismatch with the production cycle at high-grade stopes. In the case of silver, the lower grade was partially offset by higher metallurgical recoveries—rising from 87.9% in 2019 to 90.4% in 2020—because of improvements made to the lead-copper separation area of Plant 1. At Plant 2, sequential flotation was carried to recover more lead, in addition to the usual lead-copper-zinc recovery.
Concentrate quality improved meanwhile: lead grade gained 0.7 percentage points, from 42.6% in 2019 to 43.3% in 2020; silver content in copper concentrates grew 17.7% year-over-year, reaching 4,042 gr/t of concentrate.
Delays in mine preparation and infill work caused a reduction of the area prepared for ore extraction. A multi-disciplinary team was called to improve the mine’s profitability and performance, conducting various studies to recheck ore reserves, improve the development of mining works and the mining cycle. As a result, an action plan was put into effect at the end of the year.
In mining work, US$ 5.8 million was invested to develop 4,200 linear meters of strategic preparation work on four ore bodies—La Noria, San Luis, ENSKN and APZ—to meet production budgets.
Another US$ 3.1 million was invested in stability studies and the start of adjustments to tailings deposits 1, 3 and 4, to reinforce operating, safety and environmental processes to bring them into line with international standards recommended by a panel of experts. This work will continue in 2021. The unit was also able to take advantage of components and spare parts from mining units where operations were suspended, resulting in savings of US$ 1.4 million in maintenance expense, and heavy equipment was acquired to boost mine productivity, for US$ 1.2 million. Finally, installation of a Vertimill® vertical grinding mill was begun which will improve the release of metals of interest to facilitate their recovery—with an investment of US$ 700,000.
Tizapa (polymetallic: zinc-lead-copper-silver-gold)
Production | 2020 | 2019 | % chge. |
---|---|---|---|
Milled ore (kt) | 938 | 950 | -1.2 |
Content | |||
Gold (oz) | 38,875 | 36,091 | 7.7 |
Silver (koz) | 5,973 | 5,783 | 3.3 |
Lead (t) | 8,462 | 8,197 | 3.2 |
Zinc (t) | 38,305 | 38,138 | 0.4 |
Copper (t) | 808 | 1,286 | -37.1 |
This was due to better head grades, with the exception of copper, lower metallurgical recovery derived from the high lead-to-copper ratio in the head grades, and to the inherent complexity of the ore which made it more difficult to efficiently separate these metals. In this case, new reagents and chemical processes were applied in an effort to improve recoveries.
During the year, a total of 1,976 metric tons of high-value iron concentrates were produced and commercialized, with an average of 251 gr/t of gold and 366 gr/t of silver. The grade of silver in this concentrate was 1.7% higher than in 2019. Grades of silver and lead in lead concentrates also improved, as well as zinc in concentrates—to 50.6%, from 50.2% the year before. Additionally, metallurgical recoveries were more favorable for gold and silver, rising 4.6 and 0.9 percentage points, respectively, over 2019.
Mine preparation work represented 1.6 million metric tons, the equivalent of 1.6 years of production, meeting the goal of having at least one year of operation ready in advance. At the plant, modifications were made to the SAG mill shell and cyclone components were changed to control capacity and the size of particles in the flotation circuits, in addition to changes in the intelligent reagent dosing system.
A total of US$ 14.1 million was invested at this unit, primarily in: US$ 2.4 million in mining equipment to maintain productivity, US$ 400.000 to install the Vertimill® vertical grinding mill (at a cost of US$ 1.5 million) in order to increase recovery and quality of zinc concentrates, and US$ 700,000 for closing tailings deposits 1 and 2.
Capela (polymetallic: zinc-lead-silver-copper)
Production | 2020 | ||
---|---|---|---|
Milled ore (kt) | 933 | ||
Content | |||
Gold (oz) | 12,178 | ||
Silver (koz) | 2,127 | ||
Lead (t) | 2,335 | ||
Zinc (t) | 16,412 | ||
Copper (t) | 1,175 |
Efforts to stabilize operations at this unit succeeded in starting commercial production in June, with more than 50% of its nameplate capacity milled and processed. One of the main challenges was achieving efficient separation in the lead-copper flotation circuit, given the metallurgical complexity of the ore. To do this, testing was conducted with various reagents, which succeeded in improving lead recoveries, although we are continuing to look for solutions to increase copper recovery. By the end of the year, Capela had reached 99% of its installed capacity for milling and processing and produced high quality zinc concentrates with grades of more than 50 percent.
A local sourcing and entrepreneurial project was established for the creation of a local development ecosystem to trigger economic spillover and to encourages job creation. To this end , we gave the online workshops "Start your business" and "Improve your company" attended by 42 people from neighboring communities. This initiative resulted in 12 new business ideas and 16 companies under improvement.
Investment in Capela totaled US$ 45.1 million, which was used for installation and startup of the beneficiation plant.
Startup of Capela was slow and, although the unit could not achieve the expected production, it reached its milling capacity by the end of the year.
Francisco I. Madero (zinc)
Production | 2020 | 2019 | % chge. |
---|---|---|---|
Milled ore (kt) | 664 | 2,348 | -71.7 |
Content | |||
Silver (koz) | 196 | 747 | -73.8 |
Lead (t) | 2,350 | 8,905 | -73.6 |
Zinc (t) | 11,001 | 41,541 | -73.5 |
Copper (t) | 253 | 895 | -71.8 |
After a technical shutdown starting April 10, management made the decision to suspend operations indefinitely at this unit. This was because of the low grade of zinc that had been observed for several months, along with the high cost of extraction, milling and processing due both to the depth and hardness of the ore bodies and to the steep drop in zinc prices. For this reason, metal content produced in 2020 was significantly lower than in 2019.
Of the 544 people employed at Madero, 209 were transferred to other Peñoles and Fresnillo plc operations, nine left the company—eight through termination of their contracts and one due to retirement—and 308 unionized workers received their severance pay according to the law and the terms established in the respective collective bargaining agreements.
Production in Madero dropped because operations were suspended indefinitely in April.
Bismark (zinc and copper)
Production | 2020 | 2019 | % chge. |
---|---|---|---|
Milled ore (kt) | 374 | 653 | -42.7 |
Content | |||
Silver (koz) | 118 | 290 | -59.3 |
Lead (t) | 311 | 1,315 | -76.4 |
Zinc (t) | 15,409 | 24,751 | -37.7 |
Copper (t) | 275 | 460 | -40.1 |
The closing process includes a program for recovering its assets for use at other Peñoles and Fresnillo plc operating units. At the end of the year, all of the equipment from inside the mine had been disposed of, along with 90% of the usable equipment from the processing plant. Restoration of the industrial area began, including recovery of surface ventilators so that once all the usable assets are removed, remediation activities can begin according to the established plan. In total, 1,535 items were sold to sister companies, for a total of US$ 1.1 million.
The infrastructure work built over Bismark’s operating life—schools, library and other public works—were donated to neighboring communities so they can continue to be used.
Negotiations with unions were conducted respectfully, within the framework of the law, and as established in the corresponding collective bargaining contracts: 264 workers were laid off with severance pay, 40 employees were transferred to other business units, and labor relations were terminated with 17 people.
28 years
of operations at Bismark concluded due to depletion of its reserves.
Milpillas (copper cathodes)
Production | 2020 | 2019 | % chge. |
---|---|---|---|
Deposited ore (kt) | 694 | 2,474 | -71.9 |
Copper cathodes (t) | 12,444 | 22,488 | -44.7 |
Following a technical shutdown, operations at Milpillas were suspended indefinitely on April 6. The decision was made in recognition of low ore grades and the disseminated quality of the deposit, which made operating costs so expensive—alongside the drop in the price of copper—that the unit ceased to be profitable for the company. Mining work was stopped, but cathode production continued for the rest of the year from the ore deposited at the leaching pads and the rich solution processed at the electrolytic plant. The additional production will conclude once the copper contained in the leached ore is recovered.
Negotiations were concluded respectfully with the union, in keeping with the law and the collective bargaining contract, and 285 unionized workers received their severance pay.
The drop in copper prices and high operating costs affected Milpillas’ profitability. Extraction was suspended in April.
Fresnillo PLC (gold and silver)
2020 | 2019 | % chge. | |
---|---|---|---|
Ore milled and deposited (kt) | 36,387 | 45,297 | -19.7 |
Content | |||
Gold (koz) | 769,618 | 875,913 | -12.1 |
Silver (koz) | 50,270 | 51,764 | -2.9 |
Silver (koz) Silverstream(1) | 2,780 | 2,850 | -2.5 |
Lead (kt) | 63,242 | 55,722 | 13.5 |
Zinc (kt) | 106,793 | 92,578 | 15.4 |
(1) Under the Silverstream contract, Fresnillo plc is entitled to receive all the proceeds (before treatment and refining charges) minus US$ 5.0 per ounce (plus inflation as of 2013) of payable silver produced by Sabinas.
Fresnillo plc, a subsidiary in which Peñoles maintains a 74.99% share ownership, is listed independently on the London Stock Exchange and the Mexican Stock Exchange. It operates seven mining units in Mexico, which produce primarily precious metals (gold and silver), and it is the largest primary producer of silver in the world and the leading producer of gold in Mexico.
At the Fresnillo mine, work continued on controlling dilution and improving blasting and drilling to deal with narrower veins. The development rate increased to an average of 3,130 meters per month—3.1% more than in 2019—with the startup of the tunnel boring machine and work by a new contractor starting late in the previous year; commendable performance considering the limitations and reduced workforce resulting from the pandemic.
Annual gold production declined in 2020, due primarily to a lower volume of ore processed at Herradura, the result of restrictions on work relating to sanitary measures, and lower volume at Noche Buena, due to a smaller area available for exploitation, having reached the point of its mine closure plan. Adding to this was a non-hazardous slippage on one of the walls of a cut, which limited access to deeper areas affecting the mining sequence. To a lesser extent, production was also lower at Fresnillo and Ciénega due to a lower volume of ore processed and lower head grades, while grades and metallurgical recoveries were higher at Saucito.
Silver production declined due to the low grade expected at Saucito, and a reduction in volume and lower grade at Herradura. This was mitigated in part by higher head grades at San Julián (disseminated ore) and the development ore from the Juanicipio project, which was processed at the Fresnillo plant, contributing 624 ounces to annual production. Production at the Fresnillo mine was similar to 2019 because of the elements mentioned in the preceding paragraphs.
As regards base metals—which are byproducts for Fresnillo plc—the annual volume of lead was higher due to higher head grade at Saucito and, to a lesser extent, at Ciénega, along with increased recoveries at both mining units, which offset the reduction in production at San Julián (disseminated) due to lower grades and recoveries, and at Fresnillo due to lower volume and recoveries.
Zinc production was higher than the year before, mainly due to higher grade and recoveries at Saucito and, to a lesser extent, better grades at Fresnillo and Ciénega.
In development projects, construction of the Pyrites II project was completed. This includes a flotation plant at Fresnillo with 14,000 metric tons a day of capacity for recovering gold and silver from old and new tailings, to complement the Pyrites I plant at Saucito. Both of these projects will increase silver production by 3.5 million ounces a year, and gold production by 13,000 ounces. The start of operations was postponed due to delays in final inspections by the authorities after travel restrictions were imposed to control the spread of COVID-19. These inspections are indispensable for obtaining the energy permits necessary to operate the plant. Once the authorities conduct the final inspection and electrical permits are approved, the plan is expected to reach full capacity in one quarter, although given the current situation in Mexico we do not expect this to happen before mid-year 2021.
Optimization of the Fresnillo flotation plant in order to handle a higher content of lead and zinc was started up on time and within budget in the last quarter of the year. Connection of this new circuit to the processing plant is expected to be complete in February 2021, which will avoid unnecessary interruptions to normal plant operations.
Finally, progress was made on construction of the processing plant at the Juanicipio silver mine project in Zacatecas, which is expected to start up in the fourth quarter of 2021—later than originally planned due to delays in infrastructure contracts and measures relating to the pandemic. As anticipated, the ore for producing gold and silver in concentrates, both development ore and ore from the initial production stopes, has been processed at Fresnillo’s beneficiation plant since June 2020.
Construction of the tailings flotation plant at Fresnillo (Pyrites II) was completed, to increase silver contents production.