- Geological challenges dog Fresnillo in Mexico
- Bad weather hampers Hochschild Mining in Brazil
- Silver price nears highest mark since 2011
- Precious metal still looks cheap relative to gold
“The second-quarter trading updates from Fresnillo or Hochschild Mining failed to offer much by way of fresh positive news, and both have their own specific challenges at certain mines, but their share prices seem more interested in the silver price than the finer points of metal production”, says AJ Bell investment director Russ Mould.
“Fresnillo is the single best performer in the FTSE 100 in 2025 to date and Hochschild is on the fringes of the top thirty in the FTSE 250, with capital gains of 125% and 30% respectively, and if silver keeps rising the pair’s share prices could yet add a further shine to investors’ portfolios.
“Silver is on the cusp of reaching $40 an ounce for the first time since 2011, and the commodity seems to be finding favour with investors for several possible reasons.
Source: LSEG Refinitiv data
“Some are latching on to precious metals in response to concerns over inflation, which could result from President Trump’s tariffs.
“Others are looking anxiously at rising government debts in the UK and also the USA, where Trump’s Big Beautiful Bill casts aside any pretence of fiscal probity and shunts the Department of Government Efficiency into the shadows. The debt burdens, and especially the attendant interest bills, could yet oblige central banks to cut interest rates, or even return to Quantitative Easing and repression of bond yields, to make servicing the borrowings more manageable.
“Others may be seeking an alternative to the dollar as a haven asset, given Trump’s habit of making policy by Presidential decree.
“Silver may also be getting a tailwind from gold, as the white precious metal looks cheap relative to the yellow one, according to historic, relative price ratios. The gold price currently stands at 88.3 times that of silver, yet the post-1970 average is 60.2 times. For the historic average to reassert itself, silver would have to rise by almost 50%, assuming that gold stands still at its current elevated level.
Source: LSEG Refinitiv data
“Further gains in silver would be a boon to both Fresnillo and Hochschild, given that their All-In Sustained Costs (AISC) of producing an ounce of silver in 2024 were $22 and $20, respectively.
“Fresh price rises would go a long way to offsetting the negative impact of the difficulties that each firm is facing at specific mines. Fresnillo is digging out lower grades of metal at its Fresnillo, Juancipio and Cienaga mines in Mexico, while Hochschild’s Mara Rosa mine in Brazil is facing the after-effects of heavy rainfall, including repair and maintenance work. A change in local management and a thorough review of the site and its operations could yet prompt further changes to output guidance and production costs for the mine, and Hochschild overall, when it reports its first-half results on 27 August.
“Fresnillo had already anticipated its geological challenges and forecast a drop in silver output from 2024’s 56.3 million ounces. Again, higher silver prices could help to compensate, and gold production is coming on strongly. Rising metal prices will be a boost for those operations, too.
Source: Company accounts, Management guidance for 2025E and 2026E
“Despite this year’s strong gains, shares in Fresnillo and Hochschild still trade below 2011’s levels, when silver last changed hands at $40 an ounce. Some could see this as a sign there may be further upside, especially if the metal price continues to gain, although 2025’s share price rises do mean that neither share is as cheap as it once was.
Source: LSEG Refinitiv data
“Fresnillo now trades on just over three times historic net asset, or book, value and Hochschild at 2.8 times. Both figures represent a premium to the 1.8 times NAV multiple that prevails at leading US-listed silver producers.
“That said, Pan American Silver has this year acquired MAG Silver for $2.1 billion in cash and stock, a price tag which valued the target at 3.5 times NAV.
“MAG Silver’s main asset, alongside two exploration sites, was a 44% stake in the Juancipio mine, where Fresnillo owns the other 56% stake.
“Moreover, book value should continue to rise if the silver price stays firm and takes profits higher at the miners.”
