With increased focus on commodity prices, Fresnillo, the Mexican mining company is benefitting from economic and geopolitical developments.
In Fresnillo’s latest financials, the company managed to increase revenues by 11% to $2.7bn, despite facing operation challenges.
Fresnillo says they have a plan for converting those challenges to earnings and the favourable conditions for precious metals sets Fresnillo shares up for a favourable 2022.
Fresnillo Share Price
Fresnillo shares peaked at their 52-week high of 986p in later 2021, but has since dropped to trade at 769p on Thursday afternoon.
The mining company’s performance is completely dependant on commodity prices and are rightly seen as proxy for swings in gold and silver.
Fresnillo is largely known as a silver miner due to their dominance in the market among London-listed shares.
However, Fresnillo generated 45.8% of their adjusted revenue from gold in 2021, making it a great play on rising gold prices.
Goldman Sachs analysts believe that the price of gold will rise due to increased geopolitical tensions.
Targets raised for:
3-month horizon to $2,300 vs. $1950 previous.
6-month horizon to $2,500, from $2050 previous.
12-month horizon to $2,500 vs. $2150 previous.
“An increase in demand from consumers, investors, central banks due to the rising geopolitical uncertainty,” says analysts at Goldman Sachs.
Fresnillo Earnings
Fresnillo’s adjusted revenues saw an increase of 9.2% to $2.8bn in 2021. The group also reduced their refining costs by 20% in 2021.
The production of silver was lower than expected, however they saw an increase of 0.1% to 53,000 kOz in 2021. The increased revenues benefitted from the 16.9% rise in silver prices.
Gold exceeded expectation despite a reduced production of 2.4% to 751,203 Oz in 2021 because of problems in the terrain and higher mining costs.
The company has faced staffing problems due to labour reforms and the pandemic. Going forward, the company has panned out a strategy involving recruitment campaigns.
In terms of their yield from mining, the production is expected to grow with increased investments in equipment and technology.
With no positive outcome from the discussion between Russia and Ukraine this afternoon, gold prices started to rise again as investors looked for stable investments in turbulent markets.
Fresnillo’s EBITDA increased by 3.2% to $1.2bn in 2021.
Fresnillo Dividends
Fresnillo investors enjoyed a twofold increase in dividends to $0.33 which is covered 1.7x. The dividend yield for Fresnillo is 3.4%.
Fresnillo Shares Valuation
With Fresnillo trading at 769p, the stock has a forward P/E of 20.4x and a trailing P/E of 17.3x which is substantially above its FTSE 100 mining peers. However, such a valuation can be justified by Newmont’s PE Ratio of 53 and Barrick Gold’s 21x.