In the two trading days following Liberation Day (2 April), the Fresnillo (LSE: FRES) share price fell 14%. That turned out to be an incredible buy-the-dip moment, as this FTSE 100 stock has risen 29% since then. But is the move over, or can it continue to move higher?
Star performer
I have been banging the drum on Fresnillo for some time now. In just over a year, it has risen 142%, making it one of the FTSE 100’s best performers. As gold prices have surged to successive record highs, investors are beginning to wake up to how cheap the stock is.
At its FY24 results back in March, the miner highlighted just how much of a cash cow it had become. Net cash from operating activities surged 205% to $1.3bn.
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Last year, the average realised price for the gold it sold was $2,453, and for silver it was $28.78. To me, that provides some perspective about where its future earnings are heading.
Gold prices have consistently sat above $3,000 for some time. For each troy ounce of gold it mines, its all-in sustaining cost is $1,800. Adding on treatment and refining charges and ancillary expenses, and I estimate that Fresnillo’s profit today is in the ballpark of $1,000.
Silver move
In 2024, revenues between gold and silver were pretty much split 50:50. This is because it mines about 100 times more silver than gold. Indeed, it’s the world’s largest primary silver producer.
As a continued silver bull, what I find quite amazing is that Fresnillo’s price has stalled over the last few months. Who knows when its big move will come. But I remain convinced that it will pop. And history has taught us that when it does move, it’s literally a blink-and-miss movement.
Silver is a far more versatile metal than gold. As an industrial metal, it finds use in a multitude of different applications. With its excellent electrical conductivity, it’s a key component of solar photovoltaics, EVs, and supporting infrastructure for EV charging stations. It’s also a vital component of electronic goods and 5G networks.
Risks
The stock has moved so explosively lately, that any sizeable pullback in precious metals prices is likely to lead to a decline in the share price.
If metal prices should continue their inexorable rise, though, there is a real risk that governments may remove mining concessions or add burdensome regulations. We have already seen China halt exports of rare earth minerals to the US. As geopolitical tensions rise, gold and silver are increasingly becoming important strategic assets for nation states.
Ultimately, I believe that the stock will push higher in the years ahead. Should silver really break out, that’s when I would expect a major move. In the wake of the global financial crisis, soaring silver prices propelled the stock 22 times higher in just two years.
Over the past 10 years, sentiment towards precious metals miners has been atrocious. This is rapidly undoing, though, as more investors realise just how cheap the entire industry has become. I certainly have no intention of selling my holding any time soon. Indeed, if I didn’t hold such a sizeable position in my Stocks and Shares ISA, I would definitely be buying more.
