£5,000 invested in Fresnillo shares 5 weeks ago is now worth…
Rolls-Royce might attract more fanfare, but Fresnillo (LSE:FRES) shares have minted investors a fortune over the past year. In this time, they’ve soared 243%, with cascading dividends on top.
However, the FTSE 100 stock has come off the boil recently. In fact, anyone who invested £5,000 in Fresnillo just five weeks ago would have lost around £850 following a 17% pullback.
From a peak of 4,448p in January, the stock has now fallen 26% to 3,250p. Does this dip present a buying opportunity to consider?
Operating leverage
For those unfamiliar, Fresnillo is the worldâs largest silver producer and Mexico’s leading gold miner. It owns a portfolio of high-quality assets, with over 2bn ounces of silver resources and 54m ounces of gold.
Last year, revenue jumped 30.5% to $4.56bn, while net profit skyrocketed 594.3% to $1.57bn. And this despite production volumes actually declining (silver and gold fell 13.5% and 5%, respectively).
So why did profit grow nearly 20 times faster than revenue? Well, this is a classic example of operating leverage in the mining sector. As gold and silver prices have soared, Fresnillo has benefitted from covered fixed costs, meaning extra revenue has basically dropped straight to the bottom line as pure profit.
This enabled the Mexican miner to dish out $950m in dividends to shareholders last year, a record amount. Adding these in, the 12-month total return is approximately 275%.
CEO Octavio AlvÃdrez commented: âThese results demonstrate our ability to leverage our high-quality asset base while managing costs carefully to expand margins, resulting in significant cash generation and returns to our shareholders.âÂ
Is the bull run over?
Precious metals have been on a historic bull run, driven higher by various factors. These include:
- Global economic instability
- Geopolitical tensions
- Central banks buying gold aggressively
- Record global government debt
- Supply constraints
- Industrial demand for silver
For Fresnillo, the question now is, will gold and silver keep soaring? Well, I don’t have a crystal ball to know where commodity prices are heading in the short term. If gold and silver keep falling, then so will Fresnillo’s share price. This is the obvious risk here.
However, I think most of the structural drivers mentioned above are still very much intact. Take sovereign debt. When money is printed to service debt, the purchasing power of fiat currency drops. Gold and silver, which obviously cannot be printed, act as a sort of insurance policy against this debasement.
From what I see, governments in the West currently have little appetite to reduce public spending. Meanwhile, silver has rising industrial uses in solar panels, electric vehicles, and defence applications.
Gold has hit record highs in the period, reflecting geopolitical tensions, while we are also seeing a strong underlying support from central banks. We expect these themes or aspects to continue for the foreseeable future.
Fresnillo
Dividend yield
The stock’s offering a decent 3.6% forecast dividend yield. And following another production dip this year, the miner expects gold and silver volumes to bounce back in 2027 and 2028.
A recent acquisition in Canada has added another 10m ounces of gold to its resource base, while the balance sheet is in tremendous shape.
For investors with a stomach for volatility, I think Fresnillo is worth considering after its 26% fall.
The post £5,000 invested in Fresnillo shares 5 weeks ago is now worth⦠appeared first on The Motley Fool UK.
Should you invest £1,000 in Fresnillo PLC right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Fresnillo PLC made the list?
More reading
- This FTSE 100 stock soared 900% â but after a 25% crash, is the rally over?
- The ISA deadline’s almost on us! Here’s a last-minute FTSE 100 share to consider
- FTSE 100âs Fresnillo shares pull back despite record blowout results â opportunity or mirage?
- Looking for FTSE 100 bargains before the ISA deadline? Here are 2 to consider
- 2 stocks to consider buying that outperformed during the last stock market crash
Ben McPoland has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Fresnillo Plc and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
