It’s easy to assume that all share prices have been plummeting in October, but there are certainly a few exceptions. Take FTSE 100 silver miner Fresnillo (LSE: FRES).
Yesterday, the £7bn-cap’s stock soared just over 9% to make it the big riser on the day in the market’s top tier. The latest rise also takes the total gain to almost 27% in under two weeks.
I don’t see any reason to snatch at profits just yet, despite today’s rather mixed production update.
Production up
As a result of higher ore grades, higher volumes, and the contribution from the company’s new Pyrites Plant, silver production rose 6.3% (to 15.5 moz) in the three months to 30 September, compared to the same period in 2017. This brings production so far this year to 46.3 moz — a rise of 8.5%.
Despite this, full-year guidance was lowered to between 62 and 64.5 moz (from 64.5-67.5 moz) as a result of “continued challenges” at the company’s Fresnillo and Saucito mines, issues which are currently being addressed.
But Fresnillo isn’t all about silver. It’s also Mexico’s largest gold miner. Production here fell by 3.5% in Q3 compared to 2017, and by 3.7% compared to the previous quarter, due partly to lower ore grades. Nevertheless, production of the shiny stuff “continues to beat expectations,” having climbed 1.7% in the year to date, with full-year guidance now expected to be between 920 and 940 koz.
Fresnillo’s stock was down in early trading, although I’m inclined to think this is more the result of short-term traders banking some profit.
On a forecast price-to-earnings (P/E) ratio of almost 20 for the current year, it certainly isn’t cheap to buy. The likely 30 cents per share dividend for the full year equates to a yield of almost 2.6% — very average compared to some payouts offered by companies in the market’s top tier.
Having said this, Fresnillo’s performance over the last few weeks, coupled with the fact that its stock is highly-liquid, suggests it might be a decent pick, if you suspect volatility is here to stay.
Contrarian call
Fresnillo’s done well in what’s rapidly become a tough market. However, one company that’s performed even better in recent times has been fellow FTSE 100 constituent and industry peer Randgold Resources (LSE: RRS).
Since falling to a low of around 4650p back in mid-September, the gold miner’s share price has soared 38% — the sort of gain you would expect from high-growth market minnows, rather than a top-tier juggernaut. My contrarian call back in August was a touch too early, but still rather pleasing.
Can Randgold hold on to recent gains? Difficult to say.
Should markets rebound strongly, the share price will likely fall as investors assume a risk-on attitude once more. The fact that the company will soon delist as a result of its merger with Canadian company Barrick Gold could also see money being moved elsewhere in advance.
Personally, I continue to think that having some exposure to gold — either through an exchange-traded fund, or as an actual miner — isn’t a bad thing in these uncertain times, given that the value of the precious metal tends to be negatively correlated with stock markets in general.
Whether you subscribe to this view or not, Randgold’s recent performance is yet more proof that backing quality companies, at a time when they’re being shunned by most market participants, can result in great profits.
