Fresnillo’s [FRES] share price is seeing a resurgence after falling nearly 25% since late February.
The stock climbed 2.5% to 872p on Tuesday, extending a seven-day rally that saw it rise nearly 8%, after Morgan Stanley upgraded its rating from ‘underweight’ to ‘equal-weight’ amid rising uncertainty surrounding proposed mining legislation in Mexico. The bank has a 900p price target on the stock.Fresnillo 1-year share price performance, CMC Markets, as at 29 March 2019
“We still see regulatory issues for Fresnillo and other miners in Mexico, although the speed of implementation of change looks slower, and the short-term risks appear lower than we previously assumed,” Morgan Stanley’s Dan Shaw wrote in a note.
Fresnillo, which owns and operates gold and silver mines in Mexico, had seen its share price fall by as much as 12% back in November when Morgan Stanley first raised concerns about the series of proposed bills that would allow indigenous populations to block mining concessions on their land.
The precious metal miner’s as pre-tax profit fell 34% to $483.9m in 2018. While Fresnillo had achieved record production last year, its financial results still came in below guidance as a result of lower-than-expected ore grades.
Fresnillo's share price decline in November
As the world’s largest producer of silver ore, silver production rose 5.3% to a record level of 61.8 million ounces, however the average price for silver fell 8.3% to $15.5 per ounce.
The sharp fall in profits pushed the mining company to expect 2019 to be yet “another challenging year”.
“We face a number of headwinds, including lower prices for precious metals and higher inflation. I also expect to see higher depreciation costs as a result of the investments we have made in recent years into the operations, while we continue to expect to work through operational issues and lower grades at certain mines during the year,” CEO Octavio Alvidrez said.
However, financially Fresnillo is in a strong position. While its constant debt level sits at $800m, the company’s $588m in operating cash flow comfortably covers it. Fresnillo has a total debt ratio of 74%.
|PE ratio (TTM)||18.45|
|Operating margin (TTM)||23.93%|
Fresnillo stock vitals, Yahoo finance, as at 29 March 2019
Mexico’s mining production has been steadily declining since the uncertainty surrounding mining policy began in November and is forecast to fall 10% in the first quarter of 2019, according to industry chamber Camimex. Its overall output was down 3.1% last year, compared to 2017.
However, chamber president Fernando Ortega is confident that investment will stabilise in the coming months, with a rise to $4bn predicted for 2019.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.