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FTSE 100 gold and silver miner Fresnillo (LSE: FRES) has absolutely rocketed over the last 12 months. It’s up a staggering 155%, with a 41% surge in the last week alone. That makes it one of the top-performing blue-chips over the past year. And it’s no mystery why.
The gold price has been on a tear, rising 45% in the last year. Silver’s doing well too, up 23%. With conflict flaring up across the Middle East and fears over global growth never far away, precious metals are having a moment.
That’s great news for gold bugs. Not so good for me. I’ve shunned gold for most of my investing life. For a supposed safe haven, the price can be highly volatile. It boomed in 1979, following the Iranian revolution and Russian invasion of Afghanistan, then fell back and went nowhere for two decades. Plus there’s no income.
There’s no arguing with the current trend. On Friday, gold got another bump after reports that Israel had struck Iranian military targets. Alongside BP and BAE Systems, Fresnillo was one of the morning’s biggest FTSE 100 gainers.
Big numbers everywhere
It isn’t all good news. On 23 April, Fresnillo reported a quarterly drop in silver production to 12.4m ounces, down 9.7% on the previous three months and 8.4% year-on-year. That was largely down to weaker ore grades and lower volumes across several key sites.
Gold production fell 23.5% on the quarter to 156,100 ounces, although it was 10.8% higher than a year earlier. Despite those softer numbers, full-year production guidance was maintained.
Fresnillo posted its full-year 2024 results in April, and they were nothing short of spectacular. Adjusted revenue jumped 26.9% to $3.64bn. EBITDA more than doubled to $1.55bn. The miner paid out a record $547.5m in dividends across the year, including a $308m one-off special payout. Gold doesn’t have a yield, but this stock does.
A price to pay
There are risks. One is a long-running legal battle in Mexico. Fresnillo may have to pay $630m to a local community in a dispute over a shuttered gold mine. The company denies wrongdoing and is disputing the valuation.
Mining’s a tricky and dangerous business, and declining ore grades, falling output and accidents are all potential threats. But my biggest concern is the valuation. The stock now trades on a price-to-earnings ratio of more than 50, one of the priciest stocks on the FTSE 100.
To justify that, the gold rally needs to keep on going. That’s not a bet I’d be confident taking, but don’t ask me. I’ve spent the last 20 years being wrong about gold.
Peak excitement?
The 13 brokers tracking Fresnillo have a median 12-month share price forecast of 1,132p. That’s around 20% below today’s level. I suspect many of those numbers were issued before the last month’s spike.
For momentum investors, this has been a dream stock. But the faster a share climbs, the harder it becomes to maintain that pace, and the greater the potential pain if it slips.
Those who believe gold will keep shining might still consider buying. Personally, I’ll be watching from the sidelines, and occasionally kicking myself. A little diversification would have gone a long way.
