The Fresnillo (LSE: FRES) share price tanked 9% in early trading, following the release of a disappointing set of Q1 production numbers. However, with gold prices continuing to charge higher, this could be the opportunity investors late to the precious metals party have been waiting for.
Silver and gold production
The extraordinary run up in the Fresnillo share price over the past year, came to a shuddering halt today (23 April), when it released a disappointing set of production numbers. Compared to Q4 2024, gold production was down 23.5% and silver 9.7%.
The declines were primarily attributable to lower ore grade and volume of ore processed at a number of its mines. These included at Saucito and Herradura. Silver production was also hit by the cessation of mining activities at San Julián DOB (disseminated ore body).
However, the outlook for 2025 remains unchanged. Silver production is expected to be in the range of 49 to 56 moz. Gold production in the range of 525 to 580 koz.
Mining challenges
One lesson I have learnt after a few years investing in precious metals mining stocks is not to be unduly concerned by quarter to quarter production figures.
There’s no denying that mining operations are hard. And to me, they’re getting harder. Over the past few years, Fresnillo has been beset by a number of challenges. Government regulations around the use of contractors caused it significant problems, while soaring inflation impacting its costs hit its bottom line.
In addition, changing government policies extended permitting processes for mining operations and projects. Such regulations caused delays in the start-up of Juanicipio’s beneficiation plant, as well as tie-in of its Pyrites plant to the national electricity grid.
Gold prices
Soaring prices have made gold the talk of the town these days. But despite this, many private investors are yet to really wake up to the opportunity here. One only has to look at the continued interest in buying the dip on the falling Magnificent 7 stocks for evidence of that.
Maybe the extraordinary price rise for the yellow metal, means that many expect a significant pullback. In the short term, there is a real possibility of this happening. But the long-term picture couldn’t be rosier, I feel.
Central banks continue to accumulate gold in record volumes. The amount of repatriation of the physical stuff from London and New York vaults over the past few months has been simply unprecedented.
The upheaval caused by the Trump administration tells me that we are entering a completely new economic and macro regime. The investing lessons that have worked for the past 20 years, won’t work anymore. In an increasingly deglobalised, protectionist world, forgotten industries, like mining, could once again shine.
What I really like about Fresnillo is that it has exposure both to gold and silver. Compared to its more expensive cousin, silver prices remain stuck in the low $30 range. When silver will explode is anyone’s guess. But I remain convinced that it eventually it will make its big move.
The window for investors to consider getting in and capitalising on a bull market for precious metals is still there. As yet, the crowd is nowhere. That’s why I remain invested in the stock.
