In the U.S., economists are concerned because the strengthening of the U.S. dollar against other currencies has been weighing negatively on the trade balance. High inflation discourages households' spending on goods and services, and the elevated debt implies a risk of default for the world's largest economy.
The U.S. debt ceiling is more of a risk now than it's ever been in the past. Politicians are viewing it as leverage to try and advance their own agendas, and if the other party does not concede to their demands, they seem perfectly willing to allow the economy to collapse due to the government not being able to pay its debts.
This situation is creating higher uncertainty in the markets, which could lead to increased volatility. Therefore, investors should begin taking measures to secure the value of their assets. One way to do so is by purchasing silver, as the precious metal works as a safe-haven asset against elevated volatility.
Thus, silver futures with expirations in December have reached $22.547 per troy ounce as of the writing of this article, and are expected to trade higher throughout the second part of 2021, pushed by an expected increase in demand for the metal. With such a backdrop, one way for investors to take advantage of the silver bull market is to buy shares of publicly-traded silver mining companies, as their stocks usually perform much better than the metal they trade when sentiment for the commodity is bullish.
Fresnillo PLC (FNLPF, Financial) represents an interesting opportunity in the mining industry, as its share price, $10.69 at close on Monday, is expected to rebound strongly in the upcoming months, according to analysts on Wall Street. In fact, analysts have issued a median recommendation rating of overweight for this stock, meaning they expect the share price will outperform either the industry or the overall market.
The stock doesn’t look expensive. Following a nearly 40% drop so far this year, the share price now trades below the 50-day moving average value of $11.26 and the 200-day moving average value of $11.80.
Based in Mexico City, Mexico, Fresnillo is the largest producer of silver in the world with mines, development projects and exploration activities all located in Mexico. The company also holds mining concessions and exploration projects in Peru and Chile.
In addition to the grey metal, Fresnillo also mines gold, and currently, it ranks as the largest producer of gold in Mexico.
From its mineral deposits, the company mined 53.1 million ounces of silver in full-year 2020, decreasing a little bit from 2019 when the output stood at 54.6 million ounces (some activities had to slow down due to restrictions to prevent the spread of the Covid-19 pandemic).
The company also ranks high up in the industry in terms of profitability wtih an Ebitda margin of 52% vs. the industry median of 25%. The current ratio of 4.98, the interest coverage ratio of 10.45 and the Altman Z-Score of 3.97 indicate that the financial condition is strong. The company should be able to keep paying the dividend to shareholders and continue investing in projects. Also, the company is on track to complete the development of another mine in Mexico, which should start producing silver next year.
For full-year 2021, the company says that it is on track to mine between 53.5 million and 59.5 million ounces of silver. Fresnillo will also mine approximately 675,000 - 725,000 ounces of gold from its deposits.
CAPEX is estimated at $580 million, down $100 million from prior guidance due to lower capital deployment.
The stock has a market cap of $7.82 billion and grants a forward dividend of 3.12% as of Oct. 4.
Disclosure: I have no position in any security mentioned.
