Rising Silver And Renewable Energy Demand Will Unlock New Horizons

Key Takeaways

• Strong cost controls and rapid project development could drive higher margins, profits, and faster output growth than market expectations.
  
• Leadership in silver and gold, ESG advancements, and financial discipline position Fresnillo for premium valuation and robust shareholder returns.
  
• Heavy dependence on precious metals pricing, operational and project execution risks, and tightening regulatory and ESG pressures threaten future profitability, production, and growth prospects.

Catalysts

Fresnillo plc mines, develops, and produces non-ferrous minerals in Mexico.

• Analyst consensus highlights operational efficiency and cost control, but these projections may understate Fresnillo's step-change in profitability-management signals that cost reductions and productivity gains are running well ahead of expectations across key mines, particularly at Herradura and San Julián, potentially enabling structurally higher net margins and a multi-year uplift in earnings.
  
• While analysts broadly agree that brownfield expansions and ongoing exploration will extend mine life and boost output, Fresnillo's rapid development pipeline progress (notably in Valles, Guanajuato Sur, and Orisyvo) and strong community/political partnerships could unlock much larger reserve additions and faster volume growth than the consensus expects, substantially lifting revenues in the back half of the decade.
  
• The company's position as the world's largest primary silver producer, combined with deep exposure to gold, places it at the epicenter of a tightening supply/demand balance-structural global underinvestment in new mine supply, accelerating demand from wealth preservation, and surging industrial use (especially from solar and electronics) could drive a sustained precious metal price re-rating, translating directly to outsized top line growth for Fresnillo.
  
• Fresnillo's sector-leading progress on decarbonization and social license-demonstrated by 87% renewable energy usage and major local community investments-positions it to capture a valuation premium and favored access to capital as ESG becomes a binding investment criterion globally, supporting higher equity multiples and potential long-term re-rating.
  
• The company's fortress balance sheet and history of disciplined capital returns, together with ample free cash flow, set the stage for materially higher, possibly special, dividends or share buybacks-if project CapEx is optimized and metals prices hold, shareholder returns could far exceed consensus forecasts, driving a meaningful total return outperformance.

Fresnillo Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Fresnillo compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Fresnillo's revenue will grow by 1.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.6% today to 31.1% in 3 years time.
• The bullish analysts expect earnings to reach $1.3 billion (and earnings per share of $1.71) by about August 2028, up from $456.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, down from 36.3x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 9.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.23%, as per the Simply Wall St company report.

Fresnillo Future Earnings Per Share Growth

Risks

• Fresnillo's recent strong financial performance has been heavily reliant on high silver and gold prices, while long-term secular trends toward decarbonization and the increasing use of critical battery metals may reduce structural demand and price support for traditional precious metals, posing a risk to future revenues and earnings.
  
• The company is experiencing declining ore grades at key operations, with lower processed volumes due to mine sequencing and access issues, indicating a long-term trend toward higher costs per ounce and potential reductions in production volumes, which could negatively impact net margins and free cash flow.
  
• Project execution and permitting risks remain pronounced, with recurring delays in major development projects (such as the conveyor at Juanicipio and challenges at Orisyvo and Guanajuato), and such setbacks could defer or diminish anticipated future production growth, affecting long-term earnings and return on invested capital.
  
• Fresnillo's profitability remains sensitive to Mexican fiscal and regulatory changes, including potential for increased mining taxes, shifting labor reforms, or delayed permitting, all of which could structurally increase operational costs, reduce net margins, and limit dividend-paying capacity over time.
  
• Heightened global ESG scrutiny and escalating environmental regulations expose Fresnillo to higher compliance and operating costs (e.g., water management, renewable transition), and the risk of diminishing investor appetite or a higher cost of capital could constrain long-term funding for growth projects and negatively affect earnings per share.

Valuation

• The assumed bullish price target for Fresnillo is £20.5, which represents two standard deviations above the consensus price target of £13.5. This valuation is based on what can be assumed as the expectations of Fresnillo's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £20.84, and the most bearish reporting a price target of just £9.2.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of £16.73, the bullish analyst price target of £20.5 is 18.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.