Fresnillo PLC is a Mexican mining company listed on the LSE. The company is down 31% YTD.
Overview
Fresnillo PLC (LON: FRES) is a Mexican-based precious metals mining company which is listed on the London Stock Exchange. The stock is currently down around 31% YTD due to inflationary pressures across the globe. That being said, Fresnillo could bounce back pretty strong over the next 2 to 4 years due to two fundamental reasons. Firstly, the company mines gold and silver, along with some other precious metals - Metals at the moment are doing really well and gold is just 9.5% off its all-time highs and the only reason it isn't at the highs is because of the US dollar, which brings on the second fundamental reason. The USD is high in value, which is eroding the value of metals like gold because there are more Dollars available. This won't last forever and at some point, the rally in the USD will come down, Fresnillo will see import costs fall and likely a rise in the value of their mined metals, bolstering the company to the upside, more than other companies.
Financials
The total market cap for Fresnillo is £6bn. Total 2021 revenue was strong at $2.7bn with a profit after tax of $438.7m, giving them a 2021 profit margin of 16.2% (In 2020 this margin was 15.4%). Looking at the balance sheet, the year ending 2021 ended strong. Total cash on hand was $1.235bn up about 15.4% yearly. With total assets amounting to $5.7bn up about $900m YoY. Total liabilities remained small in comparison at just $1.96bn, leaving Fresnillo a net positive of $3.8bn, giving the company a L/A ratio of 34%, which is very good. Looking at the Q1 production report, mining had increased across the board with the expectation of gold mining (dropping 0.3% based on Q4).
Technicals
From a technical aspect, the stock remains supported below. Fresnillo is tied somewhat close to the value of gold and this can be seen in 2020/2021 where the prices moved higher partly due to the higher gold run. The stock has support around 31% below its current price at £5.54 this is the main key support area which has acted and proved supportive 4 times in the past 12 years. Initial support sits at £7.48. Towards the upside, initial targets are £9.96, followed by £11.98 and then the 2021 highs of £13.77.
Summary
Overall Fresnillo could end up becoming quite a good inflationary hedge because of its actual operations. Precious metals, like gold and silver, are highly demanded in economic recessions and therefore demand for its 'products' will likely be high throughout the next 24 months. The US Dollar and inflationary issues at the moment won't help operating costs, but once inflation is under control and the US dollar drops in the value, which it will in the long term, the Fresnillo will benefit from higher gold prices and lower costs but also the sustained demand, therefore possibly helping increase its share price faster than other FTSE 100 stocks.
