Fresnillo Beats Annual Output Target, Outlook Strong

(REUTERS) -- Mexican precious metals miner Fresnillo beat its annual output target and said it expected stable silver production in 2012, as a boost from new mines offsets lower ore grades at its flagship operation.

Fresnillo, along with other miners of silver and gold, has benefited from prices that touched records last year, and said it would post a strong financial performance for 2011.

Gold miner African Barrick Gold said the higher prices would help it keep unit costs in line with guidance, despite a drop in production after power outages hit its newest Tanzanian mine. Latin American rival Hochschild warned of the flip side of higher prices - double-digit cost increases.

Silver prices climbed to a record high of $49.51 per ounce in April 2011 and then fell back later in the year. But the average price for the year nearly doubled by comparison with 2010. The metal was trading around $30.2 an ounce on Wednesday.

Gold prices, off all-time highs touched in September, are still well above levels seen throughout 2010.

Fresnillo said its total annual silver production, including output from the Silverstream agreement, came in at 41.9 million ounces, just above its revised 41 million guidance, a slight dip on 2010 largely due to a 15.6 percent drop in production at its Fresnillo mine on the back of lower ore grades, which mean it is harder to recover key metals.

Fresnillo, the world's largest primary silver producer, had trimmed its silver production targets in October after a drop in output as it reinforced safety conditions at all its projects following the deaths of 10 workers.

Gold output, however, jumped almost 22 percent to 448,866 ounces for the year, thanks to expanded capacity at its Soledad-Dipolos mine, well above targeted production of 430,000 ounces and closing in on 2012's targeted 460,000 ounces.

Fresnillo said its Noche Buena was on track with start-up expected in the second quarter and added it had raised its exploration budget for 2012 by over 50 percent to $264 million.

Fresnillo shares were down 0.2 percent at 0945 GMT, marginally outperforming the broader mining sector.

AFRICAN BARRICK, HOCHSCHILD

Rival miner African Barrick Gold confirmed an expected drop in its fourth quarter production, with output down 11 percent after power outages at its Buzwagi mine, which kept full year production at 688,278 ounces -- short of the company's 700,000 to 760,000 ounce target.

But ABG, a unit of the world's largest producer Barrick Gold , said higher gold prices meant cash costs would be in line with previous guidance at $675 to $700 per ounce.

Overall it wasn't the best finish to the year. I think we're going to have to pull down our expectations on production for (2012) given our experiences of 2010, 2011, but I do think that they can post higher production in 2012, said analyst Tim Dudley at Collins Stewart.

ABG shares, which trade at a heavy discount to the sector, were down about 3 percent.

The power issues should be resolved but the track record isn't there to have confidence for a large increase year on year.

Latin American rival Hochschild, however, had better news for the market, with production in line with guidance and record planned spending on exploration for 2012.

But the miner also warned of rising cost inflation, a problem across the sector as boom years lift input costs and wages, with unit costs in 2012 expected to rise as much as 15 percent in Peru and between 25 and 30 percent in Argentina.