Fresnillo shares (LSE: FRES) have been the standout performer in the FTSE 100 and have helped supercharge my stocks and shares portfolio in 2025. Since March of last year the stock has more than trebled. But over the last few weeks it has begun to show signs of weakness.
Q2 production update
Today (23 July) the Mexican gold and silver miner released its Q2 numbers and the market seemed less than impressed, with the stock down 3% as I write.
Compared to H1 of 2024, silver production fell 11.8%. The most noticeable reason for the decline was the closure of mining activities at San Julián disseminated ore body (DOB). However, it has been known for some time that the mine was approaching end of life.
One of my main short-term concerns for the stock relates to the Silverstream contract. This is an agreement between Fresnillo and its parent company relating to the Sabinas mine entered into 20 years ago.
At the end of 2024 the company reported a revaluation loss of $182m on this contract following notification of operational and financial difficulties at the mine. As a result of these challenges, the life of the mine has been significantly reduced. No timeline has been provided when the miner will update the market.
Exploration
One major advantage that Fresnillo has over many of its peers is its healthy exploration pipeline. With a gold cycle now firmly established, it’s significantly more advantageous (from both a financial and risk perspective) for a miner to bring on-line new resources, rather than buying out a junior explorer.
Positive exploration results last year meant that gold resources increased 1.4% to 38.5moz. Silver resources increased 1.4% to 2.25bn oz.
The company is presently engaged in four advanced exploration projects. One of the most exciting projects is at Guanajuato. In 2024, it carried out extensive core drilling where significant silver-rich veins were discovered.
A preliminary conceptual study concluded that the region has good economic potential for development. Therefore, it’s now ramping up exploration studies and beginning the all-important work of building community relations and seeking environmental permitting. It aims to develop the project in 2030.
Silver prices
Exploring for new gold and silver resources and then building out a mine takes years. But then precious metal bull markets tend to be of long duration as well. And I’m of the firm believe that we’re only in the early innings of this one.
The last two gold cycles (back in the 1970s and 2000s) lasted for a decade. But in both cycles one fact held true: eventually silver participated.
At the moment silver prices are hovering at $40 – their highest in 14 years. But the reality is that compared to gold, silver prices have barely moved yet. The gold to silver ratio currently sits at 85, well above its long-term average. Two months ago it was above 100.
Investing in precious metals miners requires firm conviction. Shakeout moments are inevitable and will test the resolve of even the most ardent investor. Fresnillo’s recent wobble is one such moment. I’m more than happy with my holding at present. But for an investor who is looking to gain exposure from rising precious metals prices, this stock is certainly one to consider.
