A gold and silver gem

Fresnillo is the world’s leading silver producer and one of Mexico’s largest gold producers. It has a near 500-year history of mining precious metals in South America. Its mining concessions extend to approximately 1.7 million hectares where it operates both underground and open pit mines.

In 2021, revenue was $2.8bn, representing a 9% increase on the previous year. This was mainly down to average realised silver prices, which rose 16% during the year.

It possesses a rock-solid balance sheet. Its earnings before income tax depreciation and amortisation (EBITDA) stands at $1.2bn. With a net debt of $1.1bn that means its net-debt-to-EBITDA ratio is negative.

Silver – a versatile metal

Like its more expensive cousin gold, silver is predominantly viewed as a monetary metal. However, it also has many industrial applications too. With the greatest electrical and thermal connectivity of all metals, silver is a key component in solar panels, semiconductors and electric vehicles.

Decarbonisation of the global economy together with the ‘internet of things’, in which hundreds of billions of physical devices are connected to the internet, are two unstoppable megatrends that should ensure silver remains in high demand well into the future.

Silver also acts as an inflationary asset. In the early 1980s, when inflation was rampant, the price of silver hit $50 an ounce. More recently, during the Covid crash, silver prices rose as the general stock market tanked.

What I like about silver is that the metal looks historically undervalued relative to other commodities, including gold. That’s why I have been buying shares in Fresnillo over the last few months as I don’t know when it’s likely to bottom. But in light of the structural forces highlighted above, it’s a fair bet that Fresnillo’s share price should be higher in the long term.

Challenging environment

As one would expect of a cyclical commodities business, Fresnillo’s dividend has ebbed and flowed over the past decade. However, it has increased its dividend for the past three years. Its policy is to pay out between 33% and 50% of profit after tax each year. In 2021, the payment was $245m.

Like so many mining companies, Fresnillo has been particularly impacted by soaring energy prices, which it relies on to fuel its transport fleet.

And last year, the Mexican government introduced a law that prohibited the use of contractor labour. This hit the business particularly hard. Long term though, it’s likely to provide it with greater operational resilience.

Overall, I believe that the prospects for the company are good. Later this year, a major new mine, Juanicipio, comes on-line. This will boost gold and silver production significantly. As Fresnillo’s share price languishes at multi-year lows over recessionary fears hitting silver demand, I recently bought more shares for my Stocks and Shares ISA.

The post Why Fresnillo is one of the best UK shares to buy now appeared first on The Twelfth Magpie.

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Andrew Mackie has positions in Fresnillo. The Motley Fool UK has recommended Fresnillo. 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.

Fresnillo

Silver and gold miner Fresnillo (LSE: FRES) was one of the top-performing FTSE 100 shares in 2020. In 2021 so far, it’s been a completely different story. Since the beginning of the year, the very same shares have slumped almost 30% in value.

Arguably the main reason for this price reversal is down to the company reducing its gold forecasts for the year as a result of operational difficulties. Aside from this, the price of the precious metal has also fallen considerably since hitting record highs last August. Of course, Fresnillo isn’t the only company impacted by the latter, but it does go some way to highlighting how volatile commodity prices can be and how much risk investing in this sector involves.

It will be interesting to see how shareholders react when the miner announces its latest set of full-year results on 2 March. Even if there’s nothing further to worry about from a company perspective, the recent sell-off may push even more investors to consider taking some profit off the table.

Legal & General

After a rollercoaster year, Legal & General (LSE: LGEN) shares are back to pre-pandemic levels. Whether they stay there for long is another thing entirely. 

Of course, investing in a FTSE 100 insurance firm doesn’t guarantee a comfortable ride. Legal’s fortunes are heavily tied to the health of the global economy. And, as things stand, there’s still no consensus on how bad things will be post-coronavirus. 

On the other hand, one could argue that the shares are still cheap enough to mitigate this risk. Despite recovering strongly since news landed of the successful coronavirus vaccines, LGEN’s stock still changes hands at just 9 times forecast earnings.

There’s also the income stream to consider. At the time of writing, analysts have the company returning a total dividend of 18.5p per share to owners in FY21. That’s a yield of 7.1%. What’s more, this chunky payout looks likely to be covered sufficiently by profits, making the possibility of a cut in the near future fairly remote.

LGEN reveals its numbers for 2020 on 10 March.

Taylor Wimpey

A final FTSE 100 share worth watching in March is housebuilder Taylor Wimpey (LSE: TW). Although I don’t expect its full-year results (released on March 2) to generate much in the way of headlines, we could see some positive momentum in the shares the following day. This is assuming Chancellor Rishi Sunak does extend the stamp duty holiday as expected in the Budget.

Quite how long this boost lasts remains to be seen. It could be that many investors are still waiting for a better idea of how the housing market will shape up in the rest of 2021. As such, I’m not sure Taylor Wimpey will move out of the 100p-200p trading range it’s been stuck in for most of the last six years or so just yet. 

In the meantime, the company trades on a valuation of 11 times forecast FY21 earnings. It looks financially fit with net cash on the balance sheet. 

The post FTSE 100 stocks: 3 to watch out for in March appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Top of the FTSE 100

Silver and gold miner Fresnillo (LSE: FRES) is the best performing stock in the FTSE 100 in 2020 to date. Based on yesterday’s closing price, it’s up 80% since January. If I’d invested £5,000 at the beginning of January, my stake would now be worth a superb £9,000 (ignoring costs). For comparison, the index is still down 14% over the same period!

This result demonstrates just how much money I can potentially make in the market by stock-picking rather than tracking an index like the FTSE 100. It also shows just how safe precious metals are perceived to be in times of trouble. Tellingly, gold rose above $2,000 for the first time ever in August. Silver hit a seven-year high one month earlier. 

As the world’s largest producer of silver and the second biggest gold miner in Mexico, the economic havoc caused by the coronavirus has been a clear boon for Fresnillo. Even so, the FTSE 100 member’s gains pale in comparison to those achieved by the one-time small-cap miner Greatland Gold (LSE: GGP).  

Greater gains 

GGP’s share price is up a stonking 1,700% since the beginning of 2020. I don’t think it’s an exaggeration to say that it’s likely brought forward the retirement plans of many early holders.

What’s particularly noteworthy is that Greatland’s valuation has continued rising throughout the year. That’s despite the gold price losing some of its shine in the last six months.

Much of this appears to be down to further excellent drilling data from its world-class Havieron gold-copper deposit in Western Australia. This has led the £1.3bn cap to sign new agreements with venture partner Newcrest with a view to expanding exploration activities. The appointment of new CEO Shaun Day has also been well-received by the market. 

More to come?

Naturally, it’s hard to say what will happen to Fresnillo, Greatland Gold, and related commodity-focused stocks in 2021. A successful global vaccination programme could herald a return to normality. In such a scenario, investors may rotate away from precious metals and back into beaten-down value plays.

Then again, it’s possible that markets could get back to their choppy ways in the event of distribution setbacks. We can’t rule out a third coronavirus wave either. Both of these would likely cause the prices of gold and silver to lurch back up. The latter could also benefit from a return of manufacturing, refining, and processing activity. Electricals, medicine, and consumer product use silver, so it’s much more useful than gold.

One other potential catalyst is the return of inflation. This is a particular issue if Joe Biden approves another stimulus package in the US. Historically, gold has a particularly good record of maintaining its value when governments are forced to increase the money supply. 

If I’ve learned anything from the performance of the FTSE 100 member and Greatland this year, it’s that it can be far riskier to sit on the sidelines in cash.

As we say at the Fool UK, the best way to grow wealth remains via the stock market.

Whatever 2021 brings, my strategy is still to keep buying shares!

The post Wow! If I’d invested £5,000 in this FTSE 100 share in January, here’s what I’d have now appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

There’s another reason why I’m wary. There are no dividends or interest when you buy gold. By contrast, the FTSE 100 and FTSE 250 are full of stocks that pay dividends, even if many have suspended payouts this year. The following two shares give exposure to the gold price too.

Gold and dividends? That’s what can be achieved investing in gold mining stocks, but with an extra layer of risk. It not only brings exposure to gold price movements, but the operational performance of the mining company.

One way to play the gold price

FTSE 100-listed gold miner Fresnillo (LSE: FRES) has thrashed the actual gold price in recent months. While global stocks crashed in March, the South American miner took off. Its share price has almost doubled from 620p to today’s 1,220p.

I don’t expect it to continue climbing at that rate, especially since management recently cut full-year gold and silver production guidance. Covid-19 safety measures have hit output, while recent ore grades were lower than expected.

Fresnillo’s dramatic share price growth has shrunk the dividend yield. It’s now forecast to yield 1.5% next year, with cover of 2.2. Although Fresnillo would sit nicely in my portfolio, I wouldn’t necessarily buy it today. Thanks to the recent price surge, it looks expensive trading at 68.7 current earnings.

I’m sticking it on my watchlist though. Fresnillo’s earnings are forecast to rise 117% this year and 108% in 2021. That should slash the valuation to 14.5 times earnings and increase the yield to 3.4%. There may be a better time to take a position.

The Centamin share price tempts me more

While so many FTSE 100 companies have cut their dividends this year, FTSE 250 miner Centamin (LSE: CEY) doubled its payout in August. The spiralling gold price helped first-half profits more than triple, from $59.6m to $191.1m.

The Centamin share price has actually fallen by a third over the last month, after it suspended operations to stabilise its Sukari mine in Egypt and warned 2021 gold production would fall. This confirms my point that the gold price isn’t the only factor affecting gold mining stocks. However, this leaves Centamin trading at a less-demanding P/E ratio of 23 times earnings, and a forecast P/E of just 12.9.  Earnings per share are predicted to grow 77% over the next year.

Given Fresnillo’s toppy price I reckon Centamin could offer a better way of playing the gold price, especially given its impressive forecast dividend yield of 7.7%.

The post Tempted by the gold price? I’d consider these 2 dividend-paying FTSE gold miners appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Buffett buys gold

On Friday, it was revealed that the greatest investor since the Second World War had bought gold. To be precise, the Sage of Omaha has added the world’s second-largest miner of the shiny stuff — Canada-based Barrick Gold Corp — to Berkshire Hathaway’s portfolio in Q2.

In all, Buffett bought 20.9m shares, or 1.2% of the company. Based on the closing price at the end of last week, this amounts to a stake worth $564m.

That may be a drop in the ocean for Berkshire Hathaway (market value: $500bn) but it still represents a significant development.

Why significant?

Buffett’s purchase of Barrick matters because the master investor has previously never rated gold. The precious metal, he once said, “doesn’t do anything,” thereby violating his rule to only invest in stuff that’s actually useful.

The fact he’s now willing to invest in a company like Barrick when its shares are already at a seven-year high shows just how much the pandemic has impacted his strategy and where he now sees value. 

And who can blame him? With more money-printing likely in the US (further devaluing the dollar), investors will be looking for ways to hedge against inflation. This will likely push the price of gold even higher (beyond the record high hit earlier this month), which also increases the profit margins of those who mine it.

In addition to this, the shiny stuff also tends to rise in value when stocks crash, which could still happen in the event of a second Covid-19 wave later in 2020. We’re certainly not in the clear yet!

Should I buy Barrick too?

Following Buffett into Barrick is certainly an option. Just know that you’ll probably end up paying a far higher price than he did.

Unsurprisingly, Friday’s news sent the miner’s share price rocketing in after-hours trading. As word of Buffett’s deal continues to spread, I wouldn’t bet against it going even higher this week. 

Another thing worth mentioning is that any UK investors wanting to buy US shares must first complete a form with their broker before doing so. 

An alternative way of getting exposure to the miner is via a fund. The iShares Gold Producers UCITS ETF is one example.

Despite having 55 stocks in its portfolio, just over 9% of this passive fund’s assets are tied up in Barrick.

The only company it has more exposure to is Newmont — the world’s biggest producer of the precious metal. The fund has an annual charge of 0.55%. It’s up 37% year to date.

Other stocks to consider

If you’d rather stick to large, London-listed stocks however, there’s always the option to buy stakes in FTSE 100 miners Polymetal International and/or Fresnillo instead.

Polymetal has nine gold- and silver-producing mines across Russia and Kazakhstan. Fresnillo is the world’s largest producer of silver but also the second biggest gold miner in Mexico. If you’d bought either stock during the market crash in mid-March, you’re probably very close to doubling your cash by now. 

If you agree with Buffett that demand for gold is likely to rise for the foreseeable future, there could be even more gains on the way.

The post Warren Buffett buys gold! Should you? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in iShares Gold Producers UCITS ETF. The Motley Fool UK has recommended Fresnillo. 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.

However, I think there’s a strong case for buying Fresnillo’s shares right now. This despite its failure to rally on surging gold and silver prices over the last couple of months, in contrast to its soaring FTSE 250 peer Hochschild (LSE: HOC). The table below neatly summarises how things stand.

As you can see, Hochschild’s shares have climbed 30% on the back of low double-digit rises for gold and silver. This is how it’s supposed to be, due to operational gearing making miners a leveraged play on the metals prices. So how come Fresnillo’s shares have fallen 20%?

Misfiring

Historically, Fresnillo has been a popular pick with long-term investors seeking exposure to precious metals, along with a dividend (current-year forecast yield 2.3%). It’s the world’s leading primary silver producer and Mexico’s largest gold producer, with seven operating mines and a high-quality pipeline of projects and prospects. As a FTSE 100 stock, the liquidity of its shares has also made it a favourite with shorter-term traders.

However, over the last 18 months or so, it’s got into an unwelcome habit of downgrading production guidance, due to such things as operational delays, and working through lower ore grades than expected in one or two areas of its operations. The persistence of these challenges has led many long-term investors to throw in the towel. Meanwhile, the last thing traders want in a leveraged play on strengthening gold and silver prices is a company that keeps falling short on its production guidance.

Looking to the long term

I don’t think the fundamental attractions of Fresnillo as a long-term investment have changed. I expect management’s cost reduction and productivity initiatives to come through in time, and with improved performance and reliability to see a return of long-term investors, as well as renewed interest from traders.

Fresnillo’s challenges could persist in the near term, and the share price could remain volatile for a while yet. However, I’d be happy to buy a stake today on the view that long-term returns could be very strong from the current level.

Firing on all cylinders

Mid-cap miner Hochschild operates three mines — two in southern Peru and one in southern Argentina — and has a good pipeline of long-term projects throughout the Americas. The company, which is my colleague Ambrose O’Callaghan’s top stock for August, is firing on all cylinders.

Last month’s production report told us: “Hochschild has continued its strong operational performance in the second quarter of 2019, with year-on-year increases at all three of our mines … Consequently we remain firmly on track to meet our annual production and cost targets.”

City analysts expect earnings to soar 80% this year, followed by 40% in 2020. There are dividends too (current-year forecast yield 1.6%). While the shares have risen 30% in just a couple of months, the strong operational performance and forecast rates of earnings growth suggest to me the stock is still undervalued. I’ve long admired the company, and continue to rate the shares a ‘buy’ at their current level.

The post Would I be mad to buy the FTSE 100’s worst-performing stock? appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Meanwhile, FTSE 250 utility Drax (LSE: DRX), which released its half-year results today, hasn’t done a great deal better. Its share price is down around 20% over the three years.

However, I think both Fresnillo and Drax have the potential to deliver strong returns for investors buying at today’s depressed share prices.

Power play

When Drax posted its 2018 results in February, and commented on the outlook for 2019, it said: “We are confident in our ability to continue growing our earnings and advancing our strategy through the year.”

Today, the company reported strong growth in the first six months, with adjusted earnings before interest, tax, depreciation and amortisation up 35% to £138m. Of this, £36m came from pumped storage, hydro and gas-fired generation assets acquired from Scottish Power for £700m at the start of the year. Management said: “Integration is progressing well and we have been pleased with the performance of these assets.”

The shares are up around 3% on the day at 295p, as I’m writing. City analysts’ earnings forecasts for the full year put the stock on a price-to-earnings (P/E) ratio of 11.3. Meanwhile, having hiked the interim dividend 12.5% today, the board said investors can look forward to the same uplift in the full-year payout. This gives the stock a yield of 5.4%.

Already one of the leading generators of flexible, low carbon and renewable electricity in the UK, Drax says it has attractive investment options for growth on the back of the UK’s target of achieving net zero carbon emissions by 2050. I think the modest P/E and generous dividend yield have huge appeal. This is a stock I’d be happy to buy and hold for the long term.

Silver lining long term

Gold and silver prices have a big impact on the revenues and profits of companies that mine the metals. However, operational performance is also key for miners. And on this front, Fresnillo disappointed in 2018. Lower ore grades than expected and operational issues saw the company reduce its silver production guidance through the year.

I was hopeful Fresnillo would put its problems behind it in 2019. However, a Q1 update in April revealed production “slightly weaker than anticipated,” and this was followed by a Q2 update last week in which the company reduced its previous full-year guidance.

Silver production is now expected to be 55-58m ounces (previously 58-61m), mainly due to “lower-than-expected ore grades and ore throughput at the Fresnillo mine.” Gold production guidance has been decreased to 880-910k ounces from 910-930k, mainly due to “a delay in the construction of a leaching pad at Herradura and the lower ore throughput at the dynamic leaching plant.”

I can understand investors’ frustrations, but I think this is the wrong time to give up on Fresnillo. Indeed, I reckon the depressed share price represents an opportunity to buy into the world’s biggest silver producer for the long term. City analysts expect earnings and dividends to fall over 30% this year, but bounce back over 40% in 2020, giving a P/E of 21.9 and a 2.4% yield at a current share price of 773p.

The post 1 FTSE 100 stock and 1 mid-cap I’d buy right now appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Furthermore, stocks that have the potential to deliver rapidly-rising dividends over a sustained period could become increasingly in demand among investors. This may lead to rising share prices that could enhance the total returns on offer.

With that in mind, here are two FTSE 100 stocks that appear to offering improving dividend prospects.

Glencore

The recent performance of FTSE 100 mining company Glencore (LSE: GLEN) has been relatively disappointing. It has suffered from weak investor sentiment due to regulatory risks, as well as the prospect of a general slowdown in the world economy. As such, its shares trade on a price-to-earnings (P/E) ratio of just 7.2, while they offer a dividend yield of 6.2%.

Over the long run, the company could have a bright future. It is ramping-up production of the materials that are used to produce batteries for electric cars. With this likely to be a key growth area for the automotive sector, it would be unsurprising for their prices to rise. This could lead to a tailwind for the business over the coming years.

Since Glencore’s shareholder payouts are currently covered 2.2 times by profit, they seem to be sustainable at their current level. Although there may be more stable stocks available in the FTSE 100 at the present time, the company’s valuation and yield indicate that it offers a wide margin of safety. As such, now could prove to be the right time to buy it.

Fresnillo

For investors who are concerned about the prospects for the world economy given the ongoing trade war between the US and China, gold and silver producer Fresnillo (LSE: FRES) could be a worthwhile investment.

The company could benefit from a rise in the price of precious metals over the medium term. Historically they have shown low positive correlation to the world economy’s outlook, and may even benefit from increased risk-aversion among investors.

This is expected to lead to rising profitability for the business, with Fresnillo forecast to post a rise in net profit of 27% in the next financial year. This is due to catalyse its dividend growth rate, with an increase in dividends per share of 24% forecast for the 2020 financial year.

Although the stock has a dividend yield of just 2.4% at the present time, it offers strong growth potential over the long run. This could mean that an investment today offers a relatively high income return over the coming years as dividends rise. Therefore, with the stock also having defensive characteristics, it could be a worthwhile purchase for income investors.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Now, it’s not always wise to buy shares in out-of-favour companies. However, going against the herd can often pay off big time. Here, I’ll explain why Imperial and Fresnillo are so unloved, and why I believe they currently offer compelling value for investors.

Rise and fall

Imperial’s shares were making new all-time highs above 4,000p in summer 2016. However, it’s been largely downhill since, with the market becoming increasingly gloomy about regulation, declining industry volumes, and uncertainty about how the emerging market of so-called next generation products (NPGs) will play out.

Imperial released its latest half-year results yesterday, and its shares took another hit, plunging through the 2,300p and 2,200p levels, and closing over 6% down on the day at 2,180p. We’re now looking at a stock that’s getting on for 50% below its previous high.

Mammoth yield and capital gains potential

My colleague Paul Summers, in his review of yesterday’s results, described them as “far from the stuff of nightmares.” I fully agree. Margins and earnings were actually ahead of the analysts’ consensus, but revenue growth was lower than forecast. NGP sales were good overall, but City number crunchers expressed concern about its performance in the big US market.

Nevertheless, the company reiterated its previous full-year guidance for revenue, earnings and cash generation. As far as earnings go, we’re looking at a bargain-basement price-to-earnings (P/E) ratio of just 7.7.

In a previous article, I detailed Imperial’s prodigious free cash flow generation, but suggested its record of 10 consecutive years of 10%+ dividend growth could be set to moderate. However, in yesterday’s results, the company said it expects to deliver another 10% increase this year, giving a prospective 9.5% yield at the current share price.

If management’s confidence in the near- and longer-term outlook for the business proves well-founded, investors today will not only lock in a mammoth starting yield and substantial future income stream, but also should see significant capital gains on a re-rating of the shares in due course. For these reasons, I rate the stock a ‘buy’.

Silver miner with a shiny future

Fresnillo’s share price stood at 737p at yesterday’s market close. This compares to a high of over 2,000p soon after the vote for Brexit in June 2016. Of course market sentiment, as well as the price of silver (and gold, which the company also produces), can be highly volatile at times, and these things tend to be magnified in the volatility of the share prices of miners like Fresnillo.

However, looking through the noise of volatility, I believe Fresnillo has become fundamentally undervalued. Investor sentiment has taken several knocks over the last 12 months due to the company downgrading its silver production guidance. Lower ore grades than anticipated and some operational issues have been the problems.

I think the market has been overly harsh in hammering Fresnillo’s share price down to the extent it has. While earnings for 2019 aren’t expected to make any advance on last year, giving a P/E of 21 at the current share price, analysts’ projections of prices, production and costs have earnings rising 20%+ next year, with a further 20%+ rise pencilled in for 2021. As such, this is another unloved stock I think looks very buyable right now.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo and Imperial Brands. 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.

The Mexico-focused silver digger endured some serious share price pressure in 2018 as low ore grades smashed output levels. Reflecting these troubles, its market value dived 40% over the course of the last calendar year, and while it started 2019 on the front foot, another disappointing production update this month means it’s now dealing at its cheapest for more than three years.

Time for dip buyers to nip in and grab a slice of the action, though, I believe.

Production problems

In that update of recent weeks, Fresnillo advised that production for the three months to March was down 14.8% from the same quarter in 2018, at 13.1 million ounces, reflecting reduced ore grades and lower volumes of processed material at its flagship Saucito mine and at its San Julián complex.

But this was not the only cause for investors to wring their hands in frustration as total gold production for the first quarter fell 8.8% year-on-year, to 211,100 ounces.

Production declines had been expected in the first quarter, but actual drops were worse than Fresnillo had forecast. In better news, the company affirmed its full-year production estimates of 58 million to 61 million ounces of silver and 910,000 to 930,000 ounces of gold. But this means that the mining giant can’t afford any more disappointing output reports.

Second-half fightback?

For investors who are prepared to take a risk, however, Fresnillo could be seen as a great share to load up on today.

The Footsie business is tipping production to rise in the second half as it begins to “realise the benefits from the investments we have made into infrastructure, equipment and an extensive infill drilling programme.” And if it can keep the ship steady until these expected benefits come in during the second half, the company’s share price could fly.

It’s also worth considering the direction of precious metals prices in the latter half of 2019, of course, and the impact that this could have on Fresnillo’s share price. Sure, the dual-role metal may have sunk back below $15 per ounce in recent sessions, but there are plenty of economic and political factors that could send it to the stars in the months ahead, from the outcome of tense Brexit negotiations to fears over slumping economies in Europe, and from the implications of fresh weapons testing by North Korea to the possible launch of impeachment proceedings against US President Donald Trump.

Profits AND dividends tipped to rocket

Against this backcloth, City analysts are expecting earnings at the Footsie firm to rise just 1% in 2019, but helped by increased production from expansion at its Fresnillo mine, as well as new output from its now-approved Juanicipio asset, the bottom line is predicted to swell 22% in 2020.

This also means that dividends are expected to balloon through this period. A full-year payout of 22 US cents per share is tipped for 2019, one which is predicted to charge to 27 cents next year. Consequently, a 2.2% yield for the former figure marches to a tasty 2.7%. Larger yields can be found on the FTSE 100, sure, but for those seeking solid dividend growth in the years ahead, I think Fresnillo remains a great pick, underpinned by those exciting new mining projects.

The post An unloved FTSE 100 dividend grower whose share price I think could surge appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.