An unpredictable president in the White House, a ballooning federal deficit and a weakening US dollar, all amid a growing conflict in the Middle East.
While arguably not desirable conditions in a general investment sense, such factors have done wonders for the price of precious metals this year and gold in particular.
Since the start of the year, the gold price has marched steadily upward and by late April, it topped $3,500 per ounce for the first time.
Analysts generally think gold has considerable room to go even higher. In May, JP Morgan forecast that prices could rise to as high as $6,000 per ounce by the end of President Trump’s term in 2029, a roughly 77 per cent increase on current levels.
Earlier this month, the Royal Bank of Canada upgraded its long-term gold forecast by 12 per cent to $3,489 per ounce. While admittedly not matching JPMorgan’s bullishness, RBC’s forecast would mean gold prices touching near-record levels.
Investors seeking exposure to the metal might check out Fresnillo, the Mexican precious metals mining company, which has been a constituent of the London Stock Exchange since 2008 after it was spun out of the Mexican mining group Peñoles.
Fresnillo operates gold and silver mines across Mexico, with its two centres being in Zacatecas in central Mexico and Sonora to the north of the country. Peñoles, part of Grupo BAL, a cluster of Mexican companies led by Alejandro Bailleres, still owns about 75 per cent of the miner.
Fresnillo appears, over the last two years, to have broken a habit of consistently missing its forecasts, while it has been buoyed by the generally supportive macroeconomic environment.
Its share price has more than doubled this year, up by 132 per cent to £14.45, compared with a 62 per cent rise for its FTSE 100 competitor Endeavour Mining and 14 per cent for Hochschild Mining, in the FTSE 250.
That has made it relatively more expensive, with a price-to-earnings ratio over the next 12 months of 18, compared with 10 for Endeavour Mining and 7 for Resolute Mining.
Its price tag is not entirely unjustified, however. The company has previously flagged that it expects absolute costs to fall in 2025 versus 2024, and, according to FactSet, analysts’ consensus expectations are that while sales dip slightly in 2025, pre-tax income will rise from £707 million to around £1.2 billion.
In the three months to the end of March, Fresnillo produced 156,000 ounces of gold, beating analyst expectations by 14 per cent, thanks to much stronger grades than expected at the company’s Herradura mine.
While silver production was 4 per cent lower than the consensus forecast, Fresnillo crucially maintained its guidance on both precious metals for the year, and has done so for ten consecutive quarters.
However, analysts at Peel Hunt have warned about potential impacts on production in the second and third quarters of this year. According to the investment bank, a lack of bolting equipment has meant reduced amounts of mine development, with the exception of Juanicipio, which could limit access to lower-grade areas and possibly lead to a negative drag on production in the second and third quarters of the year.
Fresnillo has said that the issue, which principally affects the Saucito and Ciénega mines, is being resolved with the equipment being replaced. Additional training is also being rolled out, with the expectation that production will be recovered in the second half of the year.
Juanicipio also happens to be Fresnillo’s only core asset which it does not wholly own. The silver mine was owned in a joint venture with MAG Silver until the company was acquired by Pan American Silver in May.
Analysts had long thought Fresnillo would be a likely candidate for acquiring MAG Silver, given the obvious synergies, although Fresnillo’s decision not to engage in some expensive M&A has generally been seen as sensible, particularly at the potential expense of excess shareholder returns.
In that area, the company hasn’t disappointed, and it declared a one-off special dividend of $308 million, or 41.8 US cents per share, together with a final dividend of $192.3 million or 26.1 US cents, alongside its full-year results for 2024 in March.
Ultimately, Fresnillo’s attractiveness is largely the product of factors well outside of its control.
Advice: Buy
Why: Further gains in unsettling times
