Fresnillo (LSE:FRES) has been one of the worst-performing FTSE 100 stocks in recent months. Since hitting a high of 4,472p earlier this year, it’s slumped 35% to 2,911p.
Might there be a lucrative dip-buying opportunity for investors to consider here?
Why has gold crashed?
Fresnillo is the world’s leading silver producer and one of Mexico’s largest gold miners. It has eight operating mines in Mexico, as well as concessions and exploration projects in Peru, Chile and Canada.
The stock’s stonking performance — up nearly 400% in two years, even after the recent pullback — is directly related to the surge in precious metals. Last year, the firm’s revenue jumped 27.6% to $4.56bn, despite lower volumes of all metals sold.
But the juicy action was down the other end of the income statement, with net profit soaring almost 500% to $1.57bn. This highlights the incredible operating leverage that such miners can have when precious metals go through the roof.
Of course, it works the other way too — the price of gold and silver are down 22% and 40%, respectively, from their highs. Indeed, the yellow metal just posted its worst quarter in 13 years!
The main reason is that investors have been fretting about the performance of these non-yielding assets in a potentially higher interest rate environment. A stronger dollar has also knocked sentiment.
Where next?
In retrospect, a period of profit-taking was due after the massive bull run. But looking ahead, I think the underlying drivers for gold long term are still intact.
These include:
- High sovereign debt and currency debasement
- Central bank buying
- Geopolitical uncertainty
On top of this, silver has industrial applications ranging from solar energy to EVs and robotics. So it has a dual role as a financial and industrial asset. As such, most forecasts point to a far higher silver price by the 2030s.
Fresnillo has much lower production costs than the current price of gold and silver. In other words, it’s operating with a fat safety buffer in terms of remaining profitable.
According to current forecasts, Fresnillo will record a net profit above $2.2bn both this year and next, supporting forward-looking yields above 4.4%. The miner ended 2025 with a net cash position of $1.92bn.
A gentler fall
Putting all this together, I think the stock is worth considering today for a diversified portfolio. That said, I wouldn’t bet the farm because what level Fresnillo’s profits will be at in future is ultimately out of the company’s hands.
Also, the firm’s mines are all in Mexico, where regulations and the tax on mining profits could change for the worse.
In my portfolio, I chose BlackRock World Mining Trust from the FTSE 250 as a way to play the precious metals theme. It carries the same risks as Fresnillo (falling commodity prices), but it’s diversified across stocks and metals. It has a sizeable copper allocation, for example.
The trust’s 10.5% fall from recent highs has also been gentler, making this a safer option to consider, in my opinion.
What income stock do we like better than Fresnillo Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at an income share we think is worth your time.
Ben McPoland owns shares in BlackRock World Mining Trust.
