Fresnillo Stock: A Quality Silver Miner Trading at a Good Valuation Multiple (FNLPF)

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Investment thesis

Fresnillo (OTCPK: FNLPF) is the largest silver mining company in the world with 53.1 Moz of silver production in 2021. The company has 7 operating assets in Mexico and several exploration and development projects. The company is listed in Mexico, UK and available OTC in the USA

Like many other silver mining companies, it also produces a significant amount of gold and smaller amounts of base metals zinc and lead. The chart below illustrates the 2021 revenue breakdown by metal.

Figure 1 - Source: 2021 Annual Report

Figure 1 – Source: 2021 Annual Report

Fresnillo has a long history of being able to produce precious metals profitably and scale production without diluting shareholders. However, the production volume has been declining in recent years. The company expects base metals production to increase in 2022 and silver production primarily in 2023, but gold production, which accounts for a large portion of revenue, is expected to continue to decline.

Figure 2 - Source: Koyfin

Figure 2 – Source: Koyfin

Figure 3 - Source: Annual reports

Figure 3 – Source: Annual reports

The stock has, like many silver miners, performed poorly since the 2020 peak and the valuation is now reasonably attractive at this level following the share price decline.

Data by YCharts

Guidance and Juanicipio

Fresnillo expects silver and base metal production to increase in 2022 and beyond, while gold production is expected to decline. The expected increase in silver and base metal production is primarily related to the high-grade Juanicipio development project that Fresnillo owns with MAG Silver (MAG).

The construction of the Juanicipio plant was delivered on time and within budget at the end of 2021. However, the project was again pushed back with delays to connect it to the electricity grid, which is now planned by the end of 2021. mid-2022. During this time, the company was able to process part of the Juanicipio material in the Fresnillo and Saucito factories, but we are talking about more marginal quantities compared to the capacity of the Juanicipio factory.

If the updated schedule holds, the commissioning of the Juanicipio plant has the potential to be a good catalyst for Fresnillo and MAG Silver.

Figure 5 - Source: BofA 2022 Conference Presentation

Figure 5 – Source: BofA 2022 Conference Presentation


The valuation is rather attractive for Fresnillo. Forward and historical P/E ratios are around 18, which is far from expensive for a silver miner. It traded lower earlier this year and over the past year, but if we look further back in history, the price-earnings ratio is at the lower end of the historical range.

Figure 6 - Source: Koyfin

Figure 6 – Source: Koyfin

In the table below, I have included a few select silver miners in the industry. Where we can see that the valuation is significantly more attractive for Fresnillo than its peers, although the difference will narrow in 2023 if all companies can meet the projections.

Figure 7 - Source: Koyfin data and quarterly reports

Figure 7 – Source: Koyfin data and quarterly reports

We can also see that the dividend yield for Fresnillo is much higher than its peers. However, note that the H1 dividend has already been paid for 2022 even though there will also be a smaller dividend payment in H2 2022.


Purely based on valuations, Fresnillo looks quite attractive at this level, both relative to its peers and to history. You add the potential catalyst for the commissioning of the Juanicipio plant, the future looks bright for Fresnillo.

It’s worth pointing out that Fresnillo has 100% of its production in Mexico, while its peers have more diversified operations or all production in a Tier 1 facility like Hecla Mining. Although at least I still consider Mexico to be a relatively good country for mining precious metals, there have been some challenges lately.

We have seen permit delays or outright denials in Mexico, with no clear reasons for the decision on projects despite excellent local support. There have been many delays related to Covid in general. Mexico’s labor reform limiting the ability to contract out labor that went into effect in 2021 has also caused production problems and inflation for Fresnillo and other miners in the country.

Another minor negative with Fresnillo is communication. The company rarely provides updates, it also released fairly late information related to Juanicipio’s delay, lower-than-expected reserve replacements and lower long-term production guidance. This is not ideal in the silver mining industry where stocks often trade on the narrative and can have higher multiples than might be warranted by valuations.

Overall, I still consider Fresnillo to be one of the most attractive moneymakers today for anyone looking for that exposure. However, I am not long on the stock currently as I am more invested in the development part of the cycle, which is even more depressed than most growers at the moment.

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