Fresnillo: Silver Lining in Gold Mining

Fresnillo offers the cleanest and most liquid exposure to silver globally, producing over 56 million ounces annually. It’s the only large-cap, pure-play primary silver producer with multi-decade mine operations, making it a critical asset for investors seeking to capitalise on silver’s rising demand. From EVs and solar panels to electronics and 5G infrastructure, silver's role is expanding. Meanwhile, new supply is constrained by a declining ore grade base and long permitting cycles. Fresnillo sits at the heart of this structural shift, with scalability, visibility, and operating leverage unmatched in the listed universe.

With a robust balance sheet, Fresnillo provides downside protection and capital allocation flexibility. At the end of 2024, the company held $458 million in net cash and generated over $900 million in free cash flow, translating to a >10% FCF yield at spot prices. It returned $547.5 million to shareholders, including a special dividend, reinforcing its commitment to capital returns. This financial resilience enables continued investment in growth while rewarding shareholders, even during commodity price volatility. The combination of operational cash generation and low gearing sets Fresnillo apart in the mining sector.

Fresnillo’s operations have demonstrated resilience in 2025 despite the closure of the San Julián DOB and challenges at Ciénega. Gold production rose 10.8% YoY, and silver output was in line with full-year expectations. The commissioning of the San Carlos shaft at the Fresnillo mine and upgrades to Saucito and Ciénega indicate ongoing efficiency improvements. Looking ahead, Fresnillo’s pipeline – including Orisyvo, Tajitos, and Guanajuato – offers optionality and mine life extension. These projects span early-stage feasibility through to near-development assets, positioning the company for long-term organic growth while maintaining capital discipline.

• Dividend strength continues: Further distributions likely after $547.5 million paid in 2024.

• Operational stability: Solid 2025 guidance for silver and gold production reinforces confidence.

• Project development milestones: Advancements at Orisyvo and Tajitos could support medium-term growth.

• Exploration upside: Ongoing work at Guanajuato and Lucerito may boost resource estimates and investor confidence.

• Potential ramp-up at new brownfield projects: The company has added two underground projects, Valles UG (gold) and Herradura UG, aimed at sustaining production beyond 2027.

• Regulatory clarity under Mexico’s new administration: With early signs of a more favorable stance towards mining, any easing in the permitting process or tax regulations could unlock long-term growth opportunities for Fresnillo.

• Silver supercycle thesis plays out: A combination of industrial demand and investment appeal could re-rate silver and leverage players like Fresnillo.

• Broader ESG premium: With strong sustainability credentials and emissions avoidance metrics, Fresnillo is well-positioned for long-term institutional flows.

• Energy Transition:

  Silver is poised to play a crucial role in the global energy transition due to its conductive properties. Technological advance in solar has baselines meaning that it’s becoming difficult to use less silver in photovoltaic cells, which has been a historic drag in silver prices. Demand for the metal is 59% industrial with ~1/3 of supply going into solar panels. This differs from gold for which only 9% is directed towards practical use.

• Orisyvo and Rodeo projects are moving toward production:

  These two large gold projects could add 270,000-315,000 oz of annual gold production by the late 2020s, providing Fresnillo with a significant growth engine.

Mexico remains a complex and often unpredictable jurisdiction for mining. Although the tone under President Claudia Sheinbaum has improved, there’s ongoing uncertainty around permitting, land access, water rights, and special mining duties. The recent increase in the special mining right from 7.5% to 8.5% adds to cost pressure. While Fresnillo has navigated these challenges historically, any sudden changes in government stance or new legislation could delay project timelines, increase compliance costs, or impact earnings. Strategic engagement with regulators and proactive local partnerships will be key to mitigating this risk.

The closure of San Julián’s Disseminated Ore Body in late 2024 has removed a significant contributor to silver and lead output, while Ciénega continues to face challenges related to ore grade and equipment constraints. Although new zones and recovery initiatives are underway, execution risk remains, especially if mine plans slip or grades deteriorate further. Fresnillo’s ability to replace reserves and sustain output through Orisyvo, Tajitos, and Guanajuato is promising, but remains unproven. If new projects underdeliver or are delayed, the company may face pressure on unit costs and valuation multiples.

Silver is historically volatile and can be heavily influenced by macroeconomic conditions, from inflation expectations and interest rates to safe-haven flows. While the long-term demand case is strong, short-term price swings can compress margins and challenge investor confidence. A strengthening USD, weaker gold prices, or reduced speculative interest could weigh on silver’s performance. For Fresnillo, this creates potential earnings volatility despite its disciplined cost structure. However, the company's low-cost base and net cash provide some buffer against cyclical downside, allowing it to weather periods of soft pricing better than peers.