Fresnillo the world’s largest producer of silver from ore and the second-largest gold miner in Mexico, is scheduled to report its Q4 2022 earnings result on 7th March (Tuesday), before the market open in London.
Following recent stronger-than-expected US economic data and fears over a rebound in inflation which could lead to further monetary tightening by the Fed, both gold and silver pared some of the gains seen in the fourth quarter last year. Last week, gold rebounded from its weakest levels in two months, whereas silver is seen traded higher away from its near-three-month low, as market participants continue to reassess the outlook for the Fed’s monetary policy.
Fig 1：Silver Supply vs Demand. Source：The Silver Institute
Ongoing monetary tightening serves as the main headwind for the commodities. On a positive flip side, a recent shortage in silver may provide a temporary floor to the asset.
Fig 2：Gold Supply vs Demand. Source: Gold Hub
Last year, gold demand hit its strongest year in over a decade, at 4741 tonnes, almost on par with 2011. On the other hand, gold supply was up 2% (y/y), to 4755 tonnes. Its mine production hit a 4-year high at 3612 tonnes. According to the Trading Economics forecast model, in 12 months’ time, gold and silver are expected to trade at $1721.98/t oz and $20.25/t oz respectively (below current price).
Fig 3：Fresnillo Plc Revenue (USD). Source ： Financial Times
Fresnillo Plc’s sales revenue was on par with consensus estimates in 2021, at $2.7B. This was 11.24% above the prior year’s result, mainly driven by rising metal prices. For FY 2022, analysts estimate the figure to be $2.45B, down -9.26% from the previous year.
Fig 4：Fresnillo Plc EPS (USD). Source ： Financial Times
On the other hand, EPS of the company were shy of market expectation in both 2020 and 2021, at $0.44 (vs $0.47) and $0.57 (vs $0.63). In the coming announcement, consensus estimate for EPS in FY 2022 stood at $0.17, down -70.18% from the previous year.
Earlier, Fresnillo reported its silver production fell -3% (y/y) to 12.5 million ounces (previous 12.9 million ounces). Throughout 2022, its silver production only rose 1.2% (y/y) to 53.7 million (was 53.1 million). Also, its gold production fell -15% (y/y) to 635,926 ounces (was 751,203 ounces), each mainly affected by “decrease in ore throughput and lower ore grade” and “lower recovery rate”, respectively. In addition, accelerating cost inflation, increased maintenance, and a nearly 50% increase in waste material which increased costs, are factors that serve as headwinds to the development of the company’s business.
Technical Analysis:
The #Fresnillo share price is currently testing support at £7.71 (FR 61.8% extended from March’20 lows to September’20 highs), down -28.8% from YTD high. If the company’s share price remains supported above £7.71, it has to break the dynamic resistance 100-week SMA, before extending higher towards the next resistance at £8.87 (FR 50.0%). On the other hand, a closure below £7.71 may suggest bearish continuation, towards the next support at £6.06, then the psychological level £5.00.
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Larince Zhang
Market Analyst
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