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Fresnillo ups spending plans again

The Mexico-based precious metals miner is to commit $755m to capital expenditure in 2018
February 28, 2018

Whither shares in Fresnillo (FRES)? Equity in a silver and gold miner carries more risks than the physical or exchange-traded product forms, but the compensation should be price leverage, dividends and capital growth. On the face of it – with 2018 precious metals prices at or above last year’s averages – investors in the FTSE 100 group might have expected more than an 11 per cent share price loss since January.

IC TIP: Hold at 1,271p

Full-year results clearly show signs of momentum. In 2017, adjusted profits climbed 32 per cent, silver production surged 17 per cent to 58.7m ounces, and the Mexican outfit’s project pipeline steamed ahead. Dividends for the year come to just under $300m (£245m).

Yet the current issue, as with many miners, is cost inflation. Not from a strengthening peso, mind; its slight depreciation allowed Fresnillo to book a $4.7m favourable exchange effect last year. But a 5.8 per cent average hike in wages added to input pressures elsewhere, and meant that the cost of sales climbed at a faster rate than revenues. Undaunted, Fresnillo will commit $755m to capital expenditure and $200m to exploration in 2018, after last year’s hikes of 39 per cent to $605m and 16 per cent to $141m, respectively.

On average, analysts expect adjusted pre-tax profits of $826m and EPS of 72.4¢ this year, up from $717m and 67.8¢ in 2017.

FRESNILLO (FRES)   
ORD PRICE:1,271pMARKET VALUE:£9.37bn
TOUCH:1,267-1,271p12-MONTH HIGH:1,746pLOW: 1,213p
DIVIDEND YIELD:2.3%PE RATIO:23
NET ASSET VALUE:203¢NET CASH:$77m
Year to 31 DecTurnover ($bn)   Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
20131.700.4032.927.3*
20141.410.2514.73.0*
20151.440.219.65.5
20161.910.7257.930.1
20172.090.7476.140.4
% change+10+3+31+34
Ex-div:26 Apr   
Payment:4 Jun   
£1=$1.40. *Excludes special dividends of 6.8¢ a share in 2013 and 5¢ in 2014