This FTSE 100 stock is riding the gold and silver surge
FTSE 100 investors have watched plenty of rallies come and go, but few stocks have combined scale, speed, and metal leverage quite like Fresnillo (LSE: FRES).
Up 450% in a year and 900% in two, this miner leads the index â driven by gold and silver moves that have shocked everyone, including me.
No longer just a silver story
Every time Iâve written about the stock, the focus has been silver. With the metal up roughly five-fold in two years, thatâs hardly surprising. At an all-in sustaining cost (AISC) of around $17 and spot prices near $108, the maths is simple.
But gold has quietly become just as important. Itâs now trading above $5,000 an ounce, and the minerâs recent acquisition of Probe Gold â a gold pureplay in Canada capable of producing about 200,000 ounces a year for the next decade â marks a clear shift. Itâs also the companyâs first move outside Mexico.
The miner already produces roughly 600,000 ounces of gold annually, and at todayâs prices that output is changing the cash-generation profile of the business. Silver still provides the torque, but gold is increasingly underwriting the balance sheet, dividends and reinvestment.
Operating leverage
Precious metals miners donât behave like normal shares. When prices rise, profits donât creep higher â they surge. That was evident in last summerâs H1 results, when it hiked the dividend by 225%.
That leverage explains why the shares have left the rest of the FTSE 100 so far behind. It also explains why the ride has been so uncomfortable. Pullbacks can be sudden, sentiment shifts quickly, and daily price moves that would look extreme elsewhere are routine here.
I donât see the metals sustainably cooling off any time soon. Inflation remains stubborn, central banks are losing credibility, and institutions are increasingly hoarding hard assets as a hedge. Add constrained supply and rising industrial demand, and the case for higher prices looks structurally intact.
But have no doubt â this is not a stock for the faint-hearted.
Major risks
The stockâs performance is not solely tied to prices. Operational issues, cost inflation, or a disappointing exploration result can quickly erode the margin that currently looks so attractive. Mining is a messy business, and even a well-run company can run into unexpected problems.
Then thereâs the political and regulatory angle. With most operations in Mexico, changes to royalties, permitting, taxation, or labour rules could hit profitability. Commodity cycles also swing hard, and when prices reverse, losses can arrive just as fast as gains. None of that has disappeared, even after the recent rally.
Bottom line
Iâve been adding to my position gradually for the past three years, and Iâm not trying to forecast metal prices or time the next move. What matters to me is the long-term story: Fresnilloâs ability to generate cash, reinvest it, and keep compounding over time.
For investors thinking about the next step, the real issue isnât whether it will go higher tomorrow. Itâs whether youâre comfortable owning a company where the outcome depends on a handful of moving parts â metals, costs, and politics â and where the swings are part of the package. For me, thatâs a trade-off Iâve chosen to live with, and Iâm prepared to stay invested through the swings.
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Andrew Mackie has positions in Fresnillo Plc. The Motley Fool UK has recommended Fresnillo 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.
