UPDATE 1-Miner Fresnillo looks to hedge some gold output

(Corrects paragraph 4 to show the company received shareholder approval for acquiring Newmont's stake, not for hedging output)

Oct 15 (Reuters) - Mexican miner Fresnillo Plc (Other OTC: FNLPF - news) reported a small drop in quarterly silver production and said it could hedge a part of its gold output to protect its recent investment in the Herradura corridor in northern Mexico.

Shares (Berlin: DI6.BE - news) in the miner fell as much as 3.4 percent on Wednesday morning, making the stock one of the top percentage losers on the FTSE 100 index.

An increasing numbers of precious metals miners, battered by last year's steep drop in prices, are selling planned output forward to better control their cash flow.

Fresnillo, which bought out its joint venture partner Newmont Mining Corp in their gold mining joint venture Penmont last month, said following shareholder approval for the deal, it planned to hedge up to 44 percent of the output from the project.

"This is going to be discretionary to the management ... This is going to be done very slowly. So we are not going to immediately hedge all the production," Gabriela Mayor, head of investor relations, said on a media call.

The company would inform the market about the quantum and the price at which the production is sold forward as and when the contracts are made, she said.

Gold fell 28 percent and silver plunged 36 percent in 2013.

Fresnillo, which currently makes the bulk of its profits from silver mining, expects gold will represent about half of its earnings by 2018 as a result of the Newmont deal.

Attributable silver production for the third quarter ended Sept. 30 fell to 11.08 million ounces from 11.11 million ounces a year earlier.

The miner also reiterated its full-year forecast of 43 million silver ounces and said it was on track to start production from the Saucito II mine by the end of this year.

The company warned at the time of the deal that its 2014 gold production would be lower by about 4-8 percent due to technical issues at a processing plant at Penmont's Herradura mine.

Fresnillo said on Wednesday that it expected consolidated attributable gold production of 590,000 ounces in 2014.

Shares in the company were down 3 percent at 766.5 pence at 0814 GMT. The stock has risen 6 percent since the Penmont deal closed last week. (Reporting by Roshni Menon in Bangalore; Editing by Gopakumar Warrier)