- Fresnillo plc has maintained strong profitability margins of above 40% and has increased cash generation because of lean cost structure, higher market prices, and committed production sales.
- We revised the outlook to stable from negative on its parent company, Industrias Peñoles S.A.B. de C.V.
- On May 21, 2025, S&P Global Ratings revised its outlook on Fresnillo plc to stable from negative and affirmed its ‘BBB’ issuer credit and issue-level ratings on the company.
- The stable outlook reflects our view that for the next 12 to 24 months, Fresnillo plc will continue to deliver strong leverage metrics and cash generation while supporting its parent company.
MEXICO CITY (S&P Global Ratings) May 21, 2025—S&P Global Ratings took the rating action described above. We revised the outlook to stable from negative on the parent company, resulting in a similar action on Fresnillo plc. We cap Fresnillo plc’s ‘bbb+’ stand-alone credit profile (SACP) by the ratings on its parent, Peñoles (BBB/Stable/–), thereby moving in tandem with the latter. On May 21, 2025, we revised the outlook on Peñoles to stable from negative because of improved leverage prospects. Peñoles has strengthened its EBITDA through cost efficiencies and because of current higher prices on precious metals. In addition, we no longer believe the group will deviate from our expected leverage of below 1.5x over the next two years.
Fresnillo plc has kept steady leverage metrics due to consistent production rates and stronger prices. Historically, we have not seen a deviation in the subsidiary’s financial risk profile because it has maintained adjusted net debt to EBITDA ratios below 1.0x, and, in some years, at 0.0x because of its strong cash position. We don’t expect additional debt as our projected cash generation for the company could manage upcoming expansion plans and the maintenance of current assets. We forecast adjusted net debt to EBITDA to remain close to 0.0x in 2025 and 2026.
Precious metals continued to gain value throughout 2024 and the first quarter of 2025 because of current uncertainty about economic and growth conditions, especially because of changes in trade policies from the U.S. In our opinion, large economies are increasing demand for precious metals (like gold and silver) related to perceived security status in the face of increased uncertainty, which is pushing up prices.
Unlike precious metals, commodity mineral (zinc, lead, and copper) prices dropped an average of 5%-10% during the same period. Current economic uncertainty and volatility have paused high-investment projects across major industries (construction, infrastructure, real estate, and auto, among others), which are the main consumers of commodity minerals. This has translated into higher inventories while mining companies reduce production and normalize the international markets. Therefore, we expect to see further depreciation of prices for commodity minerals through 2027.
We view Fresnillo plc as a core subsidiary of Peñoles. Fresnillo plc’s revenue and EBITDA accounted for about 53% and 82% of Peñoles’ consolidated revenue and EBITDA, respectively, in 2024. Although Fresnillo plc has an independent management and board, Peñoles’ equity stake on Fresnillo plc and the latter’s relevance for results enables our core assessment. Production from Fresnillo plc is committed to its parent company, thereby reducing colocation risks.
We think strong growth prospects for Fresnillo plc will boost production rates, while it manages depletion of certain assets. Fresnillo plc’s pipeline is robust and includes four main projects that we expect to come on-stream over the next several years. Most of these greenfield projects involve gold as the main mineral, which will bring exponential growth between 2028 and 2030. These projects will take over the San Julian mine, as it has reached the last years of life. Lastly, most of these upcoming mines will be open pit, which will bring higher operating diversification to the company. The project pipeline includes:
- Rodeo (gold): We expect the company to start drilling the pit in the first half of 2025, and achieve production by 2029. Current studies estimate 1.4 million oz of gold resources.
- Orisyvo (gold): This project is still in early stages, with estimated resources of 9.6 million oz of gold.
- Tajitos (gold): Results from final studies not yet available.
- Guanajuato (gold and silver): Estimated resources of 3 million oz of gold and 371 million oz of silver.
In line with its parent company, our outlook for Fresnillo plc is stable for the next 12 to 24 months. We expect adjusted debt to EBITDA to remain below 1.0x and free operating cash flow (FOCF) to debt above 40%.
We could lower the ratings on Fresnillo plc if we did the same on the ratings on the parent, since we cap Fresnillo plc’s SACP by the ratings on Peñoles. However, weaker creditworthiness for Fresnillo plc could also occur if:
- We reassess Fresnillo plc’s subsidiary status to a weaker category.
- The company posts debt-to-EBITDA ratios above 1.5x and FOCF to debt below 40%, consistently.
- Unforeseen events hamper production volumes, negatively affecting top-line results.
- Fresnillo plc undertakes aggressive investments and requires additional debt.
We could raise the ratings in the next 12 months if we were to raise the ratings on Peñoles, triggering the same rating action on the subsidiary. We see little room for improvement on a stand-alone basis because we believe its business position will remain resilient but generally unchanged in the next several years, while its financial risk profile is already at the highest assessment level.
Original Article: https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3374197