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Precious metals miner Fresnillo (LON: FRES) warned on Tuesday that its long-standing silver production agreement with Mexico’s Industrias Peñoles is facing challenges due to operational issues at the Sabinas mine.
Fresnillo did not specify the nature of the problems affecting the mine, which has been a key source of silver under a stream agreement between the two companies since 2007. This dealt, part of a broader set of 12 contracts, grants Fresnillo the right to all proceeds from the payable silver produced at Sabinas, which is owned by Peñoles.
The company stated that discussions with Peñoles, Mexico’s largest silver producer, are ongoing to determine the extent of the operational difficulties and their potential impact on the agreement.
“Although it is too early to draw definitive conclusions, Fresnillo believes there is a reasonable likelihood that significant adjustments to the silverstream agreement may be required,” the company said.
The news weighed heavily on Fresnillo’s stock, which fell 6.2% to 634 pence in early trading on Tuesday. By mid-morning, shares had recovered slightly but were still down over 5% at 642 pence, leaving the company with a market capitalization of £4.74 billion ($6bn).
Fresnillo, originally a wholly owned division of Peñoles, became a separate entity after a minority stake was floated on the London Stock Exchange in May 2008.
Before the current challenges, Fresnillo had reaffirmed in October that its 2024 production outlook remained on track, even after reporting a 1.5% decline in silver output for the third quarter compared to the previous quarter.
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