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While most investors remain fixated on the Magnificent 7, believing that AI is about to imminently transform the world, I’ve instead been buying cheap FTSE 100 stocks. The best performer in my Stocks and Shares ISA portfolio this year, by miles, is Mexican precious metals miner, Fresnillo (LSE: FRES).
Since bottoming at 435p in March 2024, its share price has nearly quadrupled. This year alone, the stock is up an astonishing 158%. The question now is whether there is any value left in the miner.
Blow out results
Earlier this month, the miner reported its best set of numbers ever. Off the back of soaring gold prices, free cash flow surged over 500% to $1bn and profit was up 300% to nearly $500m.
Contributing to its bottom line was a 20% reduction in operating costs. This was driven by a number of external and internal factors. These included the devaluation of the Mexican peso versus the US dollar, the reduction in volumes of ore processed at its Fresnillo, Herradura, and Ciénega mines, and several successful cost reduction initiatives.
Silver
Today, everyone’s talking about gold. I continue to remain bullish on the metal, primarily because global central banks, noticeably China, keep buying. But it’s silver where I believe the next great opportunity lies.
The ratio of spot gold prices to silver currently stands at around 90, one of the highest in history. In the last two gold bull markets of the 1970s and 2000s that ratio fell rapidly as silver prices eventually outpaced that of gold.
Like gold, silver is also a monetary metal, but its industrial applications are far more wide ranging.
Silver is a major constituent of photovoltaic panels, batteries, and EVs. The prominence of solar as a major source of clean energy continues to grow. Indeed, solar remains a core strategy of Tesla.
Lesser-known applications of silver include its use in high-tech weaponry. The strategic importance of the metal couldn’t be more important to nation states, in my opinion.
Risks
Investing in individual mining stocks is extremely risky, and not for all investors. Personally, I won’t invest in out-and-out exploration mining companies because of limited knowledge of geology and geochemistry.
I view Fresnillo as the next level down on the risk scale. It’s not in the big league when it comes to gold production. Therefore, its stock will exhibit much greater levels of volatility than large-cap miners, such as Barrick Mining.
One significant risk with the stock relates to ever-changing government regulations as a condition for mining rights. For example, in the past, it has taken heavy losses when the use of contractors was banned.
Bottom line
A new gold bull market may now be in full swing, but its cheaper cousin silver, hasn’t really made its big move yet. Hovering around the high $30 range, that’s way off the all-time high of $50 seen in both previous gold bull markets.
Silver has a history of acting explosively and unpredictably. It also tends to lag moves in gold. Therefore, the longer this gold bull run continues, the more likely it will be that investors will be looking to increase their risk exposure. That to me is where the future opportunity with Fresnillo lies. For investors with an appetite for risk it’s certainly a stock to consider.
