For many people, investing via low-cost, passive vehicles like index trackers and exchange-traded funds is eminently sensible. The instant diversification they offer allows those with no interest in the markets the chance to dramatically improve their wealth over the long term without the need to continually monitor/worry about their portfolios. Even the world’s most successful active investor — Warren Buffett — is a fan.
For those that have the time and inclination, however, the rewards from stock picking can be substantially better, as the following example shows.
Celebrating its tenth anniversary in the FTSE 100 this morning was miner Fresnillo (LSE: FRES) — the world’s largest silver producer. The first Mexican business to list in London, it was spun-out from Peñoles Group in 2008 but has a history going all the way back to the early 20th century.
Having invested more than $6bn over the last 10 years, developed four new mines and grown its silver equivalent resources by 158%, the £10bn cap has vastly outperformed the index of which it is a constituent.
Using the figures provided in today’s news release, Fresnillo’s share price has climbed from 555p to 1,338p over that time — a gain of 141%. That’s over 118% more than that achieved by the FTSE 100 index. What’s more, this excludes dividends which, despite the volatility inherent in commodity markets, the company has never failed to pay to its owners (to the tune of $2.5bn over the last decade).
It is, of course, impossible to say whether the next 10 years will be so kind. In the very short term, however, things appear to be ticking along nicely. April’s Q1 report for the three months to the end of March showed a 14% rise in silver production compared to the previous year. Gold production (Fresnillo is Mexico’s largest producer) rose by 4.1%. Management’s outlook on 2018 was unchanged with 67-70moz of silver and 870-900 koz of gold targeted.
At 26 times forecast earnings, Fresnillo stock is fairly expensive but not ludicrously so. While I probably wouldn’t lap up the shares at the current time, the decent returns on sales and capital employed it’s been able to achieve over the years suggest there are worse options for quality-focused investors.
It may not be anywhere near the size of Fresnillo, but things are increasingly positive for AIM-listed Bluejay Mining (LSE: JAY). The company is focused on resources in Greenland and Finland, including the world’s highest-grade ilmenite project (Dundas) and the promising Disko nickel, copper, cobalt and platinum project.
Back in April, the £200m cap reported a 400% increase to the maiden resource at the former — equating to 96 million tonnes at 6.9% ilmenite with “significant further upside” remaining. Production is scheduled to begin in 2019 with costs expected to be in the lowest quartile globally.
Currently in talks with a number of potential off-take partners, Bluejay will take a bulk sample later this year “to supply final product parcels to customers“. Thanks to the project’s location, the company believes it can sell to buyers in both Europe and North America far more easily than competitors based in Africa.
Taking all this into account (and so long as you’re prepared to invest in a market minnow that will probably require more funding further down the line), I’m confident that Bluejay will — like Fresnillo has since 2008 — outperform the FTSE 100 going forward.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.