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Yesterday (6 January), silver surged past $80 an ounce, rising over 180% in 12 months, sending FTSE 100 miner Fresnillo (LSE: FRES) along for the ride. With the stock up 480%, could $100 silver make today’s price look like a bargain?
Defying gravity
Many investors were late to the silver party. The stock’s volatility can be off-putting, and it takes nerves of steel to ride a wave like this.
But I prefer to look at the miner through simple maths. Its average all-in sustaining cost (AISC) is just $17 per ounce, with some mines as low as $11 – among the lowest in the sector.
The company produces around 50m ounces of silver annually. At $80 an ounce, that equates to roughly $3.15bn in gross margin from silver alone. If silver hits $100, the margin could soar past $4bn. And that doesn’t even include the 600,000 ounces of gold it mines at an AISC of approximately $2,000.
Every $1 rise in silver adds roughly $50m of profit, showing just how sensitive the company is to metal prices. For long-term investors, that leverage is what makes this FTSE 100 miner so compelling – volatility aside.
Structural drivers supporting silver
Silver isn’t just another industrial metal as it’s extraordinarily versatile. Unlike most elements, it sits at the intersection of technology, industry, and monetary demand.
From solar panels and electric vehicles to electronics and high-tech weaponry, silver is at the heart of modern industry. Its role in semiconductors and AI data centres is growing, with rising electricity demand highlighting its critical importance.
This versatility makes silver unique in the periodic table: even a modest increase in demand can push prices sharply higher because it serves so many functions across sectors.
On the monetary side, I believe much of the buying today is coming from Asia rather than the West. Countries such as China have decided that the US Treasury market is no longer a guaranteed safe haven, given long-term debt concerns, and are instead accumulating gold and silver.
Asian investors are also heavy buyers, seeking returns in a weak Chinese economy and the very-low-interest-rate environment.
When combined with ongoing supply constraints, these forces create a structural tailwind for silver. Even at elevated prices, the long-term case for the metal remains robust, in my opinion.
Risks to keep in mind
Fresnillo faces several operational and structural risks. Exploration may disappoint, production costs could rise, and labour or energy price increases would erode margins.
Regulatory changes in Mexico – including royalties, permitting, or taxation – could affect profitability if silver prices continue climbing. Geopolitical tensions may also disrupt operations or trade.
Industrial demand can fluctuate, and macroeconomic shocks may pressure silver prices, hitting cash flow.
Even with strong long-term fundamentals, these factors make Fresnillo a high-risk, high-reward investment, where gains and losses can be sharp and sudden.
Bottom line
Just months ago, $100 silver seemed unthinkable. While many investors fear the rally has peaked, Fresnillo’s close relationship with the metal shows how changes in silver prices feed directly into financial performance – even if prices simply stabilise near current levels. For investors following the silver market, this is a stock to consider for further research as a clear example of how silver price moves translate into company performance.
