GRUPO BAL: PEÑOLES & FRESNILLO CUSTOMER PROFILE – MEXICO

February 2019

COMPANY BACKGROUNDGrupo BAL is a Mexican conglomerate owner of Industrias Peñoles S.A.B de C.V. (Peñoles), a Mexican mining group involved in the extraction, smelting and refining of non-ferrous metals, as well as the production of chemicals. Industrias Peñoles corporate structure is as follows:

Peñoles owns and operates mines throughout Mexico, from which it extracts and processes minerals in order to produce silver, lead, zinc and copper concentrates, silver and gold precipitates, as well as gold. The group is a major producer of metallic bismuth, refined zinc and sodium sulphate, and a leading regional producer of refined gold and lead. Key mining activities include:

› La Herradura mine – the largest gold mine in Mexico and world´s second largest.

› La Ciénega – possesses the most abundant reserves of gold in mexico.

› Saucito mine – the world´s largest silver producer globally.

› Fresnillo mine site has been operating almost continuously since 1550 and currently produces approximately 5% of the total world production of silver.

Industrias Peñoles. S. A. B. de C. V.

Fresnillo plc 75% Minas Penoles 100% Quimica Magna 100% Infraestructure Peñoles 100%

• Minera Fresnillo (100%)• Minera Penmont (100%)• Mineral Mexicana La Cienega

(100%)• Minera Saucito (100%)• Comercial;izadora de Metales

Fresnillo (100%)• Exploraciones Mineras Parrena

(100%)

• Minera Bismark (100%)• Minera Madero (100%)• Minera Tizapa (51%)• Cia. Minera Sabinas (100%)• Cia. Minera La Parrena

(Milpillas) (100%)• Minera Roble (Velardena) (100%)• Minera Maple (Naica) (100%)• Exploraciones Mineras Penoles

(100%)• Minera Peñoles del Peru (100%)• Minera Peñoles de Chile (100%)

• Metalurgica Met-Mex Peñoles (100%)

• Quimica del Rey (100%)• Fertirey (100%)

• Fuerza Eolica del Istmo (100%)• Termoelectrica Peñoles• Eolica de Coahuila

• Bal Holdings (100%)• Linea Coahuila-Durango (50%)• Sevicios Administrativos

Peñoles (100%)

Industrias Peñoles was founded in 1887 and has its head office in Mexico City with offices in Brazil and the US. It currently employs 12,082 across all operations and exported 76.1% of its production in 2017. Industrias Peñoles is listed in the Mexican Stock Market (BMV) and its subsidiary Fresnillo is listed separately in London´s stock market (LSE).

Key data from 2017:

› The total CAPEX and exploration expenses reached US$1.14bn in 2017, 32% higher than in 2016.

› The group’s consolidated expenditure in exploration reached MXN$3.591bn (approx. AUD 262m), 18.6% higher than in 2016.

› Ore mined increased 5.8% reaching 62.5 million tonnes.

› Silver production reached a new all-time record (fourth year in a row) with 66.4 million ounces, an increase of 14.4% over 2016.

› Gold production reached 951,806 ounces, 2% lower than in 2016

› Lead production reached 78,809 tonnes and zinc reached 285,137 tonnes.

› Copper concentrates increased 16.6% to 12,190 tonnes. However, copper cathodes decreased 17.3% to 19,928 tonnes.

MINING ACTIVITIESIndustrias Peñoles, S.A.B. de C.V. activities are divided into four business segments: Precious metals, Base metals, Metallurgical and Others. The precious metals division is responsible for the extraction and processing of silver and gold concentrates. The base metals area focuses on mineral exploration, extraction and processing of zinc, lead and copper concentrates. The metallurgical segment provides treating and refining of precious and base metals concentrates. The other divisions includes production and sale of chemical products, mainly sodium sulfate, operation of water treatment and rail transportation concessions, as well as administrative and operating support activities.

Industrias Peñoles’ mining activities are conducted through its 75%-owned subsidiary Fresnillo plc and its wholly-owned subsidiary Minas Peñoles, with several mines in México and exploration activities in Peru and Chile.

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MINING SUBSIDIARIESFRESNILLO plcFresnillo is the world´s largest silver miner and one of Mexico’s largest gold producers. The company was established in 2008 following restructuring of Peñoles, separating precious metals business into the Fresnillo Group. Fresnillo holds one of the largest precious metals land reserves in Mexico at 1.8 million hectares. Fresnillo set a target to achieve a goal of 65 million ounces of silver per year and 750,000 ounces of gold in 2018.

Type Commodity Operational Production since 20171

Operating Mines

Fresnillo Underground Silver primary 1554 Silver (koz) 16,512 Gold (oz) 38,784 Lead (t) 20,514 Zinc (t) 30,021

Saucito Underground Silver primary 2011 Silver (koz) 21,215 Gold (oz) 69,948 Lead (t) 17,714 Zinc (t) 20,348

Ciénega Underground Gold/Silver 1992 Gold (oz) 71,947 Silver (koz) 5,394 Lead (t) 6,328 Zinc (t) 7,048

Herradura Open pit Gold 1997 Gold (oz) 473,638 Silver (koz) 551

Soledad-Dipolos Open pit Gold 2010 Operations at Soledad-Dipolos currently suspended

Noche Buena Open pit Gold 2012 Gold (oz) 172,282 Silver (koz) 31

San Julián Underground Silver/Gold 2016 Anticipated Production: Avg. annual production of 14.2 moz silver, 49.3 koz gold.

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PT VALE INDONESIA TBK

MINAS PEÑOLES, S.A. de C.V., Peñoles operates six underground mining units in Mexico. Five of them produce three types of concentrates (zinc, lead, and copper) and one produces copper cathodes.2

1

Minas Peñoles participates with many leading foreign companies in joint ventures, including AMAX (USA), Dowa Mining Company (Japan), Homestake Mining (USA), Otokumpu (Finland) and Newmont Gold (USA).

Type Commodity Operational Production since 2017

Operating Mines

Naica Underground Lead/zinc/copper/silver 1951 Operations suspended in 2015 due to a flood in the mine.

Sabinas Underground Zinc/lead/silver/copper 1995 Silver (oz) 4,434,945 Lead (ton) 7,941 Zinc (ton) 14,079 Copper (ton) 6,615

Bismark Underground Zinc/copper 1992 Zinc (ton) 35,085 Copper (ton) 970 Silver (oz) 303,182 Lead (ton) 1,789

Tizapa (51% owned) Underground Zinc/lead/copper/ 1994 Gold (oz) 36,641 silver gold Silver (oz) 5,786,747

Lead (ton) 8,036 Zinc (ton) 39,820 Copper (ton) 1,173

Madero Underground Zinc 2001 Zinc (ton) 50,159 Silver (oz) 966,799 Lead (ton) 8,673 Copper (ton) 1,726

Velardena Underground Zinc 2013 Zinc (ton) 80,728 Gold (oz) 4,036 Silver (oz) 690,718 Lead (ton) 4,217 Copper (ton) 1,706

Milpillas Underground Copper cathodes 2005 Ore deposited (kton) 2,391 Copper cathodes (ton) 19,928

Rey de Plata Underground Silver/zinc/lead/copper In construction

1. http://www.fresnilloplc.com/what-we-do/mines-in-operation/2. http://www.penoles.com.mx/wPortal/content/conn/UCM/path/Carpetas/www/English/Press%20Room/Annual%20Reports/ENG-%202017%201.

ANNUAL%20REPORT-%20130%20YEARS%20WORKING%20FOR%20MEXICO%20.pdf

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INVESTMENT PLANSFresnillo is expected to invest in seven capital projects that should start producing by 2023, with a combined total investment of US$1.5bn. These projects will represent additional 18 million ounces of silver and 300,000 ounces of gold annually. This investment figure represents more than 50% half the total US$2.76bn investment planned in precious metals projects in Mexico over the period.3 Fresnillo´s key projects to date are4:

› Herradura expansion: Fresnillo is expected tu undertake a US$360m expansion at its Centauro deposit in Herradura mine. The expansion will extend the minés life with an annual gold production of 470,000oz from 2023, compared to the current 390,000oz/annum reached after the second dynamic bleaching plant investment was commissioned by the end of 2018 (investment US$110m).

› Centauro Deep: The Centauro Deep project is expected to bring additional 65,000oz of gold per year and is located below Centauro main pit at Herradura.

› Pyrite plant: This plant has a US$155m CAPEX with annual average anticipated production of 3.5 moz silver and 13.0 koz gold. The plant will froth float pyrite concentrates that will be leached in a 2,000 tpd dynamic leaching plant and Merrill Crowe plant to produce precipitates. This project will improve overall recoveries of gold and silver by processing historical and ongoing tailings from Fresnillo and Saucito mines. The tailings flotation facility is expected to come on line by the second half of 2019.

› Juanicipio mine: this new mine development has a pre-operative CAPEX of US$305m and it is expected to start production by 2020. The minés average annual anticipated production is of 10 million ounces of silver and 30 thousand ounces of gold. Discussions with suppliers of long term delivery equipment and construction contractors have initiated and the exploration and development works continue as planned.

› Orisyvo mine: this new gold mine development has an expected pre-operative CAPEX of of US$350m and it is expected to start production by 2022. The minés anticipated annual production is of 136 koz gold.

Minera Peñoles, has also recently made significant capital expenditure in order to increase production:

› Rey de Plata (Guerrero): polymetallic, investment US$303 million. Start planned: second half of 2019.

› Enlargement of Zinc Afinado (Coahuila): 120,000 tons of zinc ingot, investment US $ 327.0 million. Start planned: 2018.

PROCUREMENT PRIORITIESIndustrias Peñoles’ is constantly researching for technology improvements, equipment and services to overcome key operational challenges. Key improvements areas the group is focusing on include:

› Strengthen the operational leadership team.

› Improve efficiency in contracting suppliers.

› Eliminate bottlenecks caused by inefficient work practices.

› Accelerate the development of deeper ramps.

› Improve equipment maintenance.

› Strengthen supervision to improve the performance of contractors.

› Improve efficiency in cost control.

› Increase and improve sustainability across all operations.

› Intensify exploration to convert resources into reserves.

3. http://www.bnamericas.com/en/operator-series/operator-series-fresnillo-the-last-of-mexicos-big-spenders1 4 http://www.fresnilloplc.com/what-we-do/

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Please note – due to Austrade’s ongoing involvement with Grupo Bal, Austrade seeks to maintain a unified ‘Australia METS’ brand and approach in dealing with this company. We encourage companies with relevant products and services to contact Austrade’s METS Manager directly for further information and to discuss the process to be included in a response to Grupo Bal. Refer contact details below.

Critical Success factorsMarket entry

The best approach depends on a variety of factors including the type of business, the appetite for risk and funds available to the company. Relationships are very important in Mexico and a local partner can provide valuable connections and networks to decision makers. In many occasions, the decision makers both at corporate level and at mine operation level have a limited knowledge of English. Being able to speak Spanish fluently or having a Spanish-speaking local partner is important in Mexico.

Australian manufacturers supplying to the sector may also wish to investigate setting up local manufacturing facilities in Mexico. Many of Australia’s largest manufacturers have a significant footprint in the country as result of its competitive cost structures and regional market access. Austrade has also supported a small number of Australian companies in setting up contract manufacturing in Mexico. Boston Consulting Group have rated Mexico has having the third-lowest cost structure for manufacturing across the top 25 exporting nations.

Disclaimer

While care has been taken to ensure the information in this document is accurate, the Commonwealth of Australia represented by the Australian Trade and Investment Commission does not provide warranty or accept liability for any loss arising from reliance on such information.

©Commonwealth of Australia 2019. 18-19-107. Published February 2019

AUSTRADEThe Australian Trade and Investment Commission – Austrade – contributes to Australia’s economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

• develop international markets

• win productive foreign direct investment

• promote international education

• strengthen Australia’s tourism industry

• seek consular and passport services.

Austrade provides information and advice that can help Australian companies reduce the time, cost and risk of exporting. We also provide a range of services to Australian exporters looking to expand their business in growth and emerging markets, including:

• information and advice on doing business in international markets

• help with overseas market selection

• identification of relevant overseas contacts

• assistance with market entry and expansion

• identification and follow-up of specific international business opportunities.

We also administer the Export Market Development Grants scheme – the Australian Government’s financial assistance program for aspiring and current exporters.

w austrade.gov.au e info@austrade.gov.au T 13 28 78 (within Australia)

Austrade Contact Isaac Court Resources Manager

E: METSManager@austrade.gov.au

Mexico, Manuel Barbera, Business Development Manager Resource & Energy, Mexico City

T: +52 55 5728 6444

E: manuel.barbera@austrade.gov.au

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