Peñoles - Sustainable Development Report 2020

This value creation extends beyond the materials we produce, which are indispensable to the development and well-being of society, to the economic benefit from our activities not only to the communities neighboring our facilities—through actions that support their progress—but also to the municipalities and states where we operate, and the entire country.

2020 was a year of tremendous challenges and opportunities. The global crisis caused countless losses in human and economic terms and taught us, as a society, the importance of being agile and resilient in continuing our activities. All the worlds’ governments were compelled to impose lockdowns and other mobility restrictions that had an impact on most sectors of their economies, dampening prospects for consumption and growth.

Peñoles immediately took steps to protect the health of our people and our communities, and to maintain operating continuity, while complying with official provisions. Thanks to the response of our people and the cooperation of suppliers, contractors and other partners, we were able to successfully face the crisis caused by the pandemic.

We announced the difficult decision to shut down operations at the Madero unit in Zacatecas and the Milpillas unit in Sonora for an indefinite time, due to the decline in the prices of industrial metals, low grades and high operating costs. As a result of this shutdown, 267 workers were relocated to other company operations, and 630 were laid off with full severance pay under their collective bargaining agreements. Also, as planned, we completed the closure of operations at the Bismark unit after 28 years of operations, due to the exhaustion of its reserves.

In spite of the internal and external circumstances described, higher gold and silver prices and our cost and expense reduction efforts helped contain the growth in financial expenses relating to our placement of bonds and prepayment of debt, in addition to losses taken on the assets of the Bismark, Madero and Milpillas mines.

Our company’s strong financial profile and the confidence of investors allowed us to successfully issue bonds on international markets totaling US$ 1.45 billion.

Peñoles remains a benchmark for sustainability, as demonstrated by its inclusion in the newly created S&P/BMV Total Mexico ESG index, which tracks the market performance of issuers with superior corporate sustainability according to RobecoSAM methodology.

In the matter of electrical energy, we continued to increase our use of renewable sources and self-supply. In 2020 the new Mesa La Paz wind farm began operations in the state of Tamaulipas which, combined with the power generated by the Fuerza Eólica del Istmo facility in Oaxaca and Eólica de Coahuila, enabled us to supply 40% of our electrical energy needs from our own, renewable sources. This reflects the efforts and contractual commitments the group has made to operate in an increasingly sustainable manner. Our target for 2028 is to supply 100% of the electrical energy we consume from clean sources.

STRENGTHENED BY
our leadership in the production of refined primary gold and lead in Latin America and world leadership in the production of refined silver.

US$ 1,450 B

in bonds issued on international markets, making Peñoles a reference in sustainability.

We will continue improving the efficiency, agility and flexibility of our operations, based no only on profitability but on addressing environmental and social aspects.

1. Reforestation program at Capela; 2. Wastewater treatment facility at Tizapa

We are proud of the social responsibility and solidarity we showed to the communities neighboring our operations, taking social action to address needs caused by the pandemic in the states of Guerrero, Chihuahua, Sonora, Coahuila, Oaxaca, Durango, Zacatecas and the State of Mexico, where we donated supplies, equipment and medical material to frontline healthcare workers in hospitals and clinics, benefiting more than 350,000 people.

Minera El Roble (Velardeña) was distinguished with the Silver Helmet award from the Mexican Mining Chamber (Camimex) for excellent safety indicators in the category of “Underground mines with more than 500 workers.” This is a great encouragement to us, and it attests to our commitment to protecting the integrity of our people with concrete actions.

Peñoles was also the first company in our industry to receive the Sanitary Safety distinction for all of our industrial plants from the Mexican Social Security Institute (IMSS), which certifies that all of our workplaces are safe sites and have the protocols and trained personnel necessary to avoid or mitigate contagion of the coronavirus.

In the area of ethics, we maintained our Good Delivery certification from the London Bullion Market Association (LBMA), in recognition of our conflict-free supply chain in precious metals.

Other recognitions we earned during the past year included: eleventh place among the 30 Most Ethical Companies of 2020, according to the June edition of Fortune magazine in Spanish—the only one in our industry—and second place for “Ethical business philosophy”; the Ethics and Values distinction in the category of large Mexican corporations from the Confederation of Industrial Chambers; and inclusion in the IC500 Index published by Expansión magazine, for our commitment to integrity.

We have an obligation to capitalize on the lessons we learned in 2020. Peñoles is beginning a new cycle in its history, whose purpose is to improve the already strong operations and efficiency of the group’s companies by fully exploiting synergies, giving us a more precise focus and greater clarity in our accountability. To this end, beginning in 2021 the organization will assume a new structure based on the visionary strategy of our chairman: the creation of Baluarte Minero, a new entity inside Peñoles that will group and reorganize functions and structures that provide shared administrative and technical services to Peñoles and Frenillo plc. Besides making them more efficient, this will enable them to take advantage of all possible synergies, respecting their management autonomy and ensuring compliance with the commitments we have with our shareholders.

Strong operating and financial performance also requires complete and decisive compliance in with legal, safety, health and environmental regulations, as well as good relations with communities and authorities in the locations where we operate.

We intend to continue improving the efficiency, agility and flexibility of our operations, working not only to keep them profitable but to prevent and manage the environmental and social aspects that present risks and opportunities for our business.

Although the global outlook presents important and complex challenges, today, more than ever, our focus is to go beyond a state of resilience through improved operating and administrative efficiency, maximizing the benefits of our organizational restructuring and achieving a change of culture that will make us a strong, agile, flexible organization, whose relentless execution will allow us to attain our goals.

Peñoles, strengthened by the challenges and looking toward the future.

Rafael Rebollar
Chief Executive Officer

In 2021 the organization will assume a new structure with a visionary strategy: the creation of Baluarte Minero, a new entity inside Peñoles that will group shared administrative and technical services to make them more efficient.

Simba underground drilling equipment at Sabinas