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Questor: Buy shares in this gold and silver miner to protect your wealth

Silver mining
Silver mining

Shares in Fresnillo have risen by around 30pc this month alone. Questor has done its research on the silver miner and suggests that investors may be inclined to wait for any pullback, as the FTSE 100 company’s shares feel a little overbought at these prices.

However, the inflationary drumbeat remains loud, silver is starting to shine and Fresnillo’s £4.5bn market value compares to shareholders’ funds on its balance sheet of £3.2bn, so hopefully that asset backing will provide some downside protection, should it be required.

Silver is trading at a five-year high, north of $29 (£23) an ounce, but Fresnillo’s shares stand no higher now than they did in 2009, when the precious metal was priced at less than half its current price.

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Silver started to move in earnest last autumn, rather like gold, just as financial markets started to wonder whether the US economy was running hotter than expected. The expectation is that inflation could run higher for longer than expected, a view which gained further currency last week with the strong American non-farm payrolls numbers.

Throw in rampant US government spending, and how inflation on the other side of the Atlantic seems to be reaccelerating, and investors and traders may be on the hunt for stores of value once more.

In addition, silver looks cheap relative to gold. Silver trades way below the $48-an-ounce peak reached in 2011 (and before than in 1980, when the Bunker Hunt brothers’ attempts to corner the silver market came badly unstuck).

This is in contrast to gold, which stands at new all-time highs, at nearly of $2,400 (£1,921) an ounce. As a result, the gold price currently trades at nearly 83 times that of silver, whereas the long-term average is a multiple nearer 65 times.

Fresnillo is the world’s largest silver miner, based on 2023 output of 56 million ounces with an all-in sustained cost of between $20 and $22 an ounce at its major Mexican mines.

Double-digit percentage increases in input costs, currency movements and even theft resulted in lower profits and a dividend cut in 2023, while a proposed ban on new open-pit mining permits in its home country of Mexico is a further dampener to sentiment.

Even so, patient contrarians could be tempted to take a second look, given the apparent disconnect between the share price and the silver price.

Questor says: Buy Fresnillo when the share price settles

Ticker: FRES

Share price at close: 598p

Update: Shell

A first-quarter profit warning from America’s ExxonMobil and a mixed trading statement of its own early in April do not necessarily make the strongest case for Shell, but the long-term outlook still seems strong.

Granted, gas prices remain depressed, but oil is back to around $90 a barrel and the market for hydrocarbons may have much firmer foundations than many may think, for five reasons.

First, thanks to the oil price collapse of the mid-late 2010s, and the panic of 2020, as well as political and public pressure to move away from hydrocarbons, capital investment in new output remains relatively restrained and supply growth is due to be modest, especially as OPEC is sticking to its production cuts.

Second, OPEC+ is sticking to its discipline, as evidenced by its decision to maintain production cuts (3 Apr).

Third, in its quest to quell inflation ahead of 2022’s mid-term elections the Biden administration ran down America’s strategic petroleum reserve by 220 million barrels to leave it at barely half capacity. Energy security requirements suggest this will need to be replenished at some stage.

Fourth, markets still seem more interested in AI and Nvidia in particular than they do raw materials. But what do they think will be powering all of the servers and data centres which will be whirring away as large language models are crunched

Oil, gas and coal still provide 60pc of the world’s electricity, according to analysis by Ember, and they provide a more reliable supply than many renewable alternatives, at least for now.

Fifth, this may be one unexpected reason why oil demand continues to grow. While we must consider the vested interests of the source, oil cartel Opec believes the world will consume 104.5 million barrels of oil a day in 2024, with a further increase to 106.3 million in 2025, a level 6pc above that seen in the pre-pandemic year of 2019.

Shell’s shares do trade at an all-time high, but a forward p/e ratio of barely nine times, with a forward yield of nearly 4pc according to analysts’ consensus forecasts, still suggest the oil and gas major is good value.

Investors will get to see Shell’s full first-quarter results statement on 2 May.

Questor says: Stick with Shell. Hold

Ticker: SHEL

Share price at close: £28.90


Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.

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