Investors who spotted Fresnillo (LSE:FRES) as one of the best stocks to buy at the start of 2025 are understandably celebrating right now. The last seven months have generally been a great time for UK shares, with the FTSE 100 delivering a 14.2% total return. But this performance pales in comparison to the 134% returns from Fresnillo shares. And that’s not even including dividends!
So the question has now become, is Fresnillo still a top stock to consider buying now? Let’s investigate.
Why are Fresnillo shares surging?
There are several factors contributing to the outperformance of this leading gold and silver mining enterprise:
- Surging gold prices – Rising geopolitical tensions have resulted in high demand for safe-haven assets like gold and silver, driving up the price of Fresnillo’s flagship precious metals
- Production ramp up – Production output is on the rise thanks to higher ore grades, particularly at its Herradura mine, leading to an upgrade in full-year guidance
- Currency tailwinds – The benefits of higher gold production and precious metal prices have been compounded by the devaluation of the Mexican peso vs the US dollar, resulting in a 20.2% drop in adjusted production costs.
There are other factors at play. But overall, the net effect is an enormous jump in both revenue and earnings throughout 2025. This, in turn, translated into an enormous surge of free cash flow to over $1bn in the first half of the year versus $187.4m a year ago. And the end result is a balance sheet getting flooded with cash while dividends are up 225%!
With that in mind, it’s not surprising to see the Fresnillo share price skyrocketing.
Looming headwinds?
With such impressive growth under its belt, many investors may be wondering if the stock still has more to offer. And with some institutional share price forecasts projecting the share price to climb a further 18% over the next 12 months, Fresnillo may still belong on investors’ ‘best stocks to buy’ lists.
However, forecasts always need to be taken with a pinch of salt. And despite its strong performance, the mining giant still has plenty of challenges to overcome. Most recently, the reserves at its Sabinas mine were revised downward by 50%, impacting internal production and free cash flow projections.
At the same time, there continues to be uncertainty regarding Mexican mining regulations. While this hasn’t had a major impact in the near term, in the long run, the shifting regulatory landscape surrounding open pit mines could make future expansion far more challenging – a serious problem once Fresnillo’s existing projects start to reach the end of their lifecycle.
The bottom line
Fresnillo appears to be enjoying the tailwinds of higher production volumes and commodity prices. That’s certainly translated into impressive financial results, but it also masks the ongoing regional, regulatory, and operating risks the company is entangled with.
Suppose gold prices were to suddenly fall? In that case, investor sentiment could quickly turn, potentially undoing a large chunk of the group’s recent gains. As such, Fresnillo’s definitely a high-risk investment right now. That’s why I’m not rushing to buy its shares today.
