On 5 April the window to shelter up to £20,000 in the 2024/25 tax year ends. But once I have parked my proceeds in a tax-free vehicle, my attention then turns to where to invest. One of my standout stocks is this FTSE 100 cash cow.
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A touch of gold
Despite posting a blow-out set of results in FY24, Fresnillo (LSE: FRES) still remains pretty much under the radar of most private investors. A year ago I could pick up shares in the company for 435p. Today, they are trading at 948p.
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In the very recent past, most investors wouldn’t touch precious metals miners with a bargepole. But when a business boasts net cash of $458m, sees its revenues grow 26% and EBITDA more than double, then its little wonder that I have become increasingly excited about the growth potential here.
Gold prices have remained above $3,000 now for a number of weeks. I have no idea if they can push higher from here; but I do know that for every ounce of gold it mines, its profit margin is a $1,000. In 2025 and 2026, it expects to produce around 580 koz a year. That gives it a gross profit from gold production alone of $580m.
Silver’s link to the gold cycle
Despite a surge in gold prices, the real reason why I remain so bullish on the stock is because of its silver play.
Silver has a history of moving explosively. In March last year the metal price surged 50% in a matter of months. And that is nothing compared to some of the moves of the past.
In the early 1980s, at the peak of a decade-long inflationary cycle, its price literally went parabolic, topping out at $50. It repeated the feat again 2011, in the aftermath of the global financial crisis.
I am becoming increasingly of the view that we are potentially on the cusp of another major explosive move. One fact is for sure: never in history has there been a gold cycle where silver has not participated.
Risks
The last few years has been extremely tough for Fresnillo. Rising energy, labour and explosives costs really hit the bottom line. The spectre of greater regulation over the mining industry is, and will continue to be, an undoubted threat for the viability of its operations.
Many years ago it entered into a contract with Peñoles (the ‘Silverstream’ contract), whereby it would receive a net cash settlement from its Sabinas silver mine. However, last year it received notice that the life of that mine has been significantly reduced, thereby resulting in lower future cash flows. At the moment, the exact amount is unknown.
Fresnillo remains one of my riskier plays in my Stocks and Shares ISA. But the chance for outsized returns in a sustained precious metals bull market is very real.
In 2024 cost savings and efficiencies totalled $40m. If it can sustain and build on these kind of savings, then the share price could get a further boost if metal prices stay anywhere near where they are now. For me, I can never own enough of the stock, which is why I bought more in the last month.
