Gold at £1,700! Time to buy this cheap FTSE 100 stock?

Gold has surged to record levels in 2024! Is this a time to be looking at FTSE 100 stocks with some exposure to the yellow metal?

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FTSE 100 stock Fresnillo (LSE: FRES) looks cheap. The shares in the silver and gold miner just fell to near-15-year low. 

Meanwhile, gold and silver prices have shot to near-record highs as demand for the precious metals continues to rise. 

Is this a no-brainer buying opportunity?

Metals

Well, this isn’t your typical FTSE 100 opportunity, for one thing. That’s because Fresnillo’s products are safe-haven assets. The miner digs up silver and gold which are often bought at stores of value. They’re like insurance for uncertain times.  

The only problem is that buying the yellow and white metals protect wealth but doesn’t grow wealth as they’re not income-producing. Even at these record prices, neither metal has outperformed inflation since the early 1980s. 

So Fresnillo offers the best of both worlds. It’s a company and produces an income. But it also offers a hedge against bubbling global tensions. 

I’m sure I’m not the only one with jitters about the various conflict hotspots around the world and Fresnillo could offer a tonic to the geopolitical stress.

I’d add that the eye-watering debt levels of many Western economies makes any kind of hedge look like a sensible option these days.

A good time to think about buying?

Let’s say I’m taken by the general idea. Is it a good time to buy? Well, the Fresnillo share price at £4.61 looks cheap compared to previous highs of over £13 in 2020, £19-plus in 2016 and over £20 in 2011. 

A forward price-to-earnings ratio of 18 looks attractive for a company trading between 20 and 30 times earnings over the last decade. 

I could buy in at peak interest rates too. When rates fall, gold and silver prices tend to go up because holding cash returns less.

Fresnillo’s grown production for years. Next year’s gold haul could be as high as 640k ounces – more than any other miner in Mexico. The silver haul could also reach 64m ounces – more than any miner across the globe. 

Throw in a pristine balance sheet with low debt (0.43 times net debt to EBITDA) and a decent cash position and we might have a winner. 

Let’s go back to that share price though. Why’s it fallen?

Well, inflation is one part of it. The miner is paying more for fuel, labour and materials. This might be just a passing concern though. Its other problem was the strength of the Mexican Peso against the US dollar which has eaten into profits.

One to consider

Fresnillo is on the FTSE 100 as a secondary listing and all revenue comes from Mexico, so this could be the biggest risk to the stock looking ahead. 

Still, for any investor wishing to gain some exposure to gold or silver without the issues of actually buying the metal, this is a stock to consider buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo Plc. 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.

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