Join our community of smart investors

FTSE star Fresnillo ups dividend on the back of higher profits

Precious metals miner sees profits flow in thanks to silver and gold prices, although investors will not yet see a return to the dividend levels of 2016 and 2017, when sales were worse but profits higher
March 2, 2021
  • Final dividend of 23.5¢ takes 2020 payout to 25.8¢, four-fifths higher than 2019
  • Cash profits slightly behind analyst forecast on higher mine costs

Massive investor interest and strong silver and gold prices meant Fresnillo (FRES) would have struggled to have a better 2020, pandemic notwithstanding. The precious metals miner became a star performer on the FTSE 100 last year, driving a share price gain of over 100 per cent between January and September. 

The company’s profits climbed across all metrics, with profit before tax leaping over 200 per cent to $551m (£396m) in 2020. The change in fortunes compared to 2019 was heightened by that year’s far higher costs and production struggles. The 2020 pre-tax profit is still below what Fresnillo achieved in 2016 and 2017, when it reached over $700m. Its cash profit of $1.17bn – up almost three-quarters on 2019 – was also behind Peel Hunt’s $1.28bn forecast because of higher costs at two mines. 

Higher cash flow meant Fresnillo could announce a higher final dividend of 23.5¢, compared to 14.5¢ last year, and land in a smaller net debt position than anticipated by Peel Hunt, at $97m compared to a forecasted $355m. 

The higher gold and silver prices in the year more than made up for lower production caused by Covid-19 restrictions. Fresnillo produced 53m ounces (oz) of silver and just under 770,000oz of gold, 12 per cent down on 2019, while adjusted revenue climbed 15 per cent. Costs were down on 2019, with the company’s overall cost of sales dropping 7 per cent to $1.55bn, with the lion’s share coming from processing stoppages because of Covid-19 restrictions. 

Chief executive Octavio Alvídrez said the company had managed to get its production issues under control last year despite the pandemic. “Even in the face of such an unprecedented challenge, I am pleased to report that we have largely stabilised production,” he said. 

Fresnillo’s major operations include several mines where gold production will decline in the coming years. Alvídrez said silver output would increase from the Fresnillo and Juanicipio mines while the company would need to start mining at the Rodeo and Orisyvo assets to get gold in growth territory. 

For 2021, Fresnillo expects silver production of 53.5m-59.5moz and 675,000-725,000oz of gold. 

We have been sceptical about Fresnillo in the past given its production struggles and high costs, but London’s investors have not had the same reservations. There has been some pullback, however, since the miner got over 1,300p in the second half of 2020, with it now sitting around 900p. This looks more sustainable. Hold.

Last IC View: Hold, 1,228p, 28 Jul 2020

FRESNILLO (FRES)   
ORD PRICE:904pMARKET VALUE:£ 6.7bn
TOUCH:903-905p12-MONTH HIGH:1,380pLOW: 457p
DIVIDEND YIELD:2.1%PE RATIO:25
NET ASSET VALUE:472¢NET DEBT:3%
Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20161.9172057.930.1
20172.0974076.140.4
20182.1048447.527.4
20192.1217927.714.5
20202.4355150.825.8
% change+15+208+83+78
Ex-div:22 Apr   
Payment:01 Jun   
£1=$1.39