- Silver price up a third in past twelve months and gold is at new all-time highs
- Mexican miner and FTSE 100 member posts big jump in 2024 profits
- Company declares a hike in its ordinary dividend with first special payment since 2013
“Gold continues to grab headlines for reaching new all-time highs above $2,900 an ounce this year but silver is up by a third in the past twelve months and it trades near eleven-year highs around $32 an ounce, and this is all good news for Fresnillo,” says AJ Bell investment director Russ Mould.
“The miner’s 2024 results show a big jump in profits and a huge increase in its dividend, as well as a special dividend worth $0.418, the first such payment since 2013, when silver last traded at current levels.
Source: Company accounts
“Equity investors clearly do not share commodity traders’ enthusiasm for precious metals and their producers. Fresnillo’s shares are less than half their level of 2013 when silver last traded above $30 an ounce.
“Sceptics will counter by arguing that the precious metal had peaked two years earlier, in 2011, and was firmly on a downtrend. Bulls will assert that the trend in silver looks much more encouraging, at least for now.
Source: LSEG Refinitiv data
“Silver surfers will also assert that silver is cheap relative to gold. At current prices, the gold/silver ratio is nearly 92 times, whereas the post-1971 average is just 61 times.
Source: LSEG Refinitiv data
“If silver does put on further gains, then Fresnillo should benefit, since it is the world’s largest silver miner, although extracting precious metals from a mine is never as simple as it sounds. Changes to Mexico’s mining laws are one complication, given reduced lifetimes for concessions, permits that focus on specific minerals and not just whole areas and stricter environmental requirements. Additionally, there are rules that stipulate how much subcontracted labour may be used.
“All eight of Fresnillo’s operating mines, which produce gold, and also by-products are based in Mexico, as are its four advanced exploration projects. Management may therefore also be watching the tariff to-and-fro with America with keen interest.
“Fresnillo’s silver output for 2024 was flat at 56.3 million ounces, and modest declines are expected for 2025 and 2026. Gold output rose slightly in 2024 to 632,000 ounces but again declines are expected for the next two years.
Source: Company accounts, mid-point of management guidance for 2024-26E
“Despite some of the regulatory obstacles it faced, Fresnillo managed to reduce its all-in sustained cost (AISC) of silver output to $22 an ounce from $22.9 in 2023. That bodes well for 2025, given how the silver price is some $10 an ounce higher than that and analysts expect a further increase in pre-tax income in the coming year, on top of the huge rebound in 2024.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“The price of silver will have a huge say in that and Fresnillo trades on barely 10 times forward earnings, a sizeable discount to the 14 times rating currently afforded the wider FTSE 100 index. That gap reflects the commodity nature of the miner’s products and the sensitivity of its profits to even minor changes in the silver price.
“A sustained run in silver could see earnings forecasts increase and the shares re-rate, if investor confidence in a bull run in precious metal grows, but the opposite could also apply, and the market could well slap an even lower multiple on Fresnillo’s earnings were silver prices to ebb.”
