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HI Nickel_Investor!
Please stop ramping FXPO on this board. I know what I'm talking about, and you will probably lose your investment - simply because the top company (FXPO) will probably lose control of its underlying assets and be rendered worthless. You shouldn't be surprised, such legal "raiderstvo" is a common occurrence in the Ukraine, and the oligarch behind FXPO has made some very serious political mistakes (such as supporting exiled ex-Pres Yanukovich). As the Russian saying goes, "it's hard to make money, but it's even harder to keep it."
It seems to me that you are swimming in dangerous shark-filled waters and you don't even realise it.
Very happy to be invested for medium-term in FRES at these levels.
Very good but it’s still not for the FRES board.
Can we put it to bed now please?
Tiger - funny you say that mate. Aren't you in the stock market to make money? You have dismissed FXPO because of it's location and yet this is stock that went from 15p to £3 in a couple of years!! It's now back to £1.38 with a profits multiple of 2, trading below nav and offering a 11% dividend yield? There isn't a chance it will stay down here for much longer.
As for FRES, happy to take a bet with you that the gains at FXPO are far more rapid? All of the cash FRES generates from operations is going straight into it's capex programme. In the process cash is depleting at an extremely scary rate. The problem with FRES is the valuation, it's obscene. In contrast, FXPO is trading on metrics that simply won't last. There isn't a cheaper miner out there.
Yes, I can talk about Mexico as well. I worked on one big project there for a few months. There is a problem with corruption (and violence) in Mexico for sure, but nothing like Ukraine, which is truly mind-boggling.
I repeat, FXPO is Ukrainian, in all but domicile. You are entirely at the mercy of a Ukrainian oligarch - that is NOT a good position to be in. (Yes, I know a few of them rather well. FWIW, I've even listened to their proposals to list in London so they could offload the equity in companies that they knew were doomed to fail).
And Ukrainian judges in the "kha'istvenny" (commercial) courts are so corrupt it is beyond belief. I could tell you a really funny story about that from my own experience, but it's probably not a good idea on a public forum.
Honestly, IMO, sell your shares in FXPO and have a good time with the money. Or give it to a good charity. You'll be much happier in the end. You've got no idea what you're dealing with.
Oh, and FXPO are a Swiss company (not Ukrainian)....Bahnhofstrasse 13, BAAR, 6340, Switzerland
Can you tell us about the corruption levels in Mexico? Pretty high I would imagine!
Hi Nickel_Investor!
I didn't realise before your FXPO was a Ukrainian company.
I speak fluent Russian (and a little Ukrainian) and I worked in Ukraine for a few years.
Do you even begin to understand the total and utter corruption of that country? From politicians and judges down to policemen and border guards. It's far worse than in Russia, for example. Or, indeed, far worse than almost any other country I've ever heard of (and I'm something of a specialist in these matters).
IMO, putting money into a Ukrainian company is investment suicide. You might as well burn it, at least you'd have more fun.
Well doesn't seem there's a buy case on valuation.
The cash pile here is going to shrink even further because all the capex and distributions are more than absorbing it. 2021 is when to look again as the capex will be the pretty much behind. Good luck if you continue to hold it, think it's going to get a lot more challenging as the trading multiples here are absurd and the CEO has repeatedly told the market it's going to be challenging for some time yet.
https://equity-insider.com/2019/08/25/equities-analysts-cut-earnings-estimates-for-fresnillo-plc-otcmktsfnlpf/
The above is one of many analysts who have been reducing the outlook of what Fresnillo is likely to earn in 2020. In fact most analysts who are not appointed by Fresnillo in any way are all marking them down and the entire consensus which can be seen on market screener Fresnillo and looking at analysts revisions for 2020 shows a marked consensus drop. Of course analysts can be wrong. The point I am making it is their collective perspective that has helped bring the valuation down to the 600p mark. Fresnillo has provided bad results for several quarters in a row. I have a feeling they could well deliver another disappointment next week. Positive surprises do happen but for me to own Fresnillo before the report the price would need to be lower and below 590p for a discount.
Tony
Most analysts are well above current SP: to whom are you referring specifically?
H2 will perform significantly above H1 and in 2020, the new projects are scheduled to kick in (some earlier, such as Herradura).
The reason for the current SP is shorting.
Stock on loan per Euro clear has risen from 26.63% of stock in public hands (ie excluding Penoles, with approx. three quarters of all issues share capital, who do not change that position) to 27.48%, over 50 million shares shares.
That wholly distorts the market: shorts are continually opened, but not closed: just like all the funny money out there, it is a distortion of "real" capital.
Put simply, if those shorts had to close, where would this SP be?
Juxtapose
Thank you for your reply. I believe the most significant factor hat has lowered the share price is the sharp reductions in 2020 earnings that have been issued by most of the brokers despite the recent rises in metal prices. The revisions imply a loss of 33% of all 2020 earnings. The analysts have marked it down to 18.5PE rate which takes the price of stock to around 590p target on next year's earnings. I will look for an entry below that price as the stock will then be offering a discount.
Good to see the debate guys but haven't seen a response yet that justifies such a crazy profit multiple at FRES. Most of the cash made from operations in the cash flow statement is going straight to capex which leaves very little over.
As for FXPO, 75% of it's market cap is cash generated from operations. Of that, a large chunk is now being returned to shareholders (almost an 11% dividend) , capex to increase production by 14% next year, and deleveraging the balance sheet. For context, they had about $900m 4 years ago, now net debt (cash+debt) is heading for around $230m by year end. It's only trading on profit multiple for TWO in 2019, crazy cheap. Anyway, will keep an eye on the posts here as really keen to see if anyone can explain why FRES is such good value. I just can't see it.
How about comparing FRES with POLY and HOC? which one is cheaper?
Nickel investor
FXPO looks interesting until it comes to location: Ukraine.
East and west squaring up on that border might not be good for business.
Tornadotony
A number of the major cost components impacting on H1 2019 are one offs, identified in comparison with H1 2018.
The expectation (deducting production in H1 from the revised annual guidance, said to be conservative) is that production in H2 will resemble H2 2018 and be substantially better than H1 2019.
Higher production always = lower cost per oz (due to fixed cost component)
Less of the "one off"costs.
Significantly higher POG and POS, straight to bottom line.
The buy side is simply being overwhelmed by the ongoing shorting: excluding Penoles, stock on loan sails on up towards 30% of stock. At these kinds of levels, it is substantial dilution by "double counted" shares. Other than by market manipulation, how can that short position be unwound?
How will this market react to positive production figures next week, when it is praying for a disaster scenario?
Can someone tell me if the extra $200M costs identified in July 2019 are being taken off the earnings during H2. If this is the case then the share price value has to be lower than 590p and this gives a PE rate would be 32x earnings as the annual earnings become 23 cents.
OMG, let us FRES investing nitwits here alone :))....you better play with nickel and iron and dont spam this thread with FXPO ...greetings from a geo !
Hi Nickel_Investor,
From what I know about miners is that you don't use PE as a means of valuing them. That's used for "standard" companies (e.g. food producers, tech, insurance, etc.) even though it can be manipulated. As far as I know for miners you have to look at Cashflow. So your point that FRES has PE of 60 for me is no way a sign that it's overvalued. It simply doesn't mean anything.
TigerByTheTail - with respect, I've given you a few points why on paper FRES is grossly overvalued. Happy to hear a similar type response from you or anyone else but I don't believe there is one. Nothing personal mate.
As for Ferrexpo, It's trading at only TWO x profits after tax and pays a 10% dividend at this price. It's also now trading below it's net asset value and has a free cash yield of over 30%!!!
You may or may not be right that FXPO is the bargain of the century, Nickel_investor. I haven't got a clue. Personally, I'm prejudiced against iron ore companies given that we're probably headed towards a recession.
You're obviously not seriously interested in investing in Fresnillo, so I won't bother writing a long post reasoning why I believe this share is currently underpriced and worth buying.
We could argue the same for FXPO tiger . Iron ore prices soared after their June end reporting and yet look at the share price . What’s factual is that on an annualised h1 earnings FXPO is trading on a 2x PE... that’s absurd ! FRES is trading over 60x in comparison ... don’t forget the metal price rise is being aboard by the amount of capex and so profits are dented . FXPO had over $900m debt only a couple of years back and that’s now done to the $300m territory and they pay a 10% dividend at this level ! Meanwhile FRES’ net debt position has deteriorated rapidly. There’s no way this FRES price can be backed but happy to continue to hear the reasoning on this bb
Hi Nickel Investor!
Your "figures" are completely misleading, as I rather suspect you already know.
Try including the recent improvements in the price of silver and gold in your estimates for a start. They make a simply huge difference. And the big capex investments that Fresnillo are making this year will pay themselves back many times over in years to come. You make it sound like it's money thrown away.
FXPO and FRES are totally different shares in totally different markets - I do not dispute that on the face of it FXPO is undervalued but so is FRES within the PM market. I would not compare the two but might consider both.
FRES’ free cash yield will be dismal until the end of 2020 because their capex requirements are so high . On a PE ratio basis FRES is trading about 62 times vs FXPO which is currently 2 times. FRES is trading materially above its NAV , FXPO below. The FXPO dividend yield is around 11% at this price , FRES is low single digits ...
Enough off topic though. Back to FRES, why do you think it's overvalued? Just looking at cash, profit isn't the best way to value a miner IMO.
I haven't done full NPV calculation and they have lots of mines so this will be quite a bit of work. Using FCF/EV won't work for valuation, as obviously the Free Cashflow is negative like last year. But looking at the history of their FCF over the last 10 years that could change quickly to the upside, especially with rising silver prices. That would make FCF/EV look great.
Another metric (not the best for producers tbh) is EV/moz which for FRES comes at 99 (only Measured and Indicated, excluding Inferred). For comparison, Pan American Silver comes at 109. I've just recalculated those. So we're quite cheap compared to other silver majors.