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Yes, juanicipio is a biggie. Newmont has a massive mine there too.
Sherlock, I'm not sure what you're taking about regarding the company valuation and "shrinking" production. Juanicipio is about to come online this year and that mine is 'UGE! 10m oz silver annualy for 19 years!
NPV for Juanicipio is $2.8b at 23 bucks silver and $1450 gold. Fresnillo owns 56% of it. I think that solves your valuation problem!
There is good and bad in them not being interested in their london listing. I suspect they probably regretted it. Penoles will probably pass the fees on to FRES but that is all in our books so nothing to be alarmed about.
I have mentioned in my previous post that Penoles didn't have to shut because of their smelter operation and they got an exemption. This is the good part of FRES being in Penoles. I agree with the lack of IR response.
If Penoles takes the hedge on its books, I assume they do not pay more for the gold and silver they receive from FRES what they have to deliver into the hedge. Otherwise, they would make shareholders of FRES happy with such a windfall profit. If this is not the case, they still have the possibility to charge more for the management costs they invoice to FRES.
Look, FRES has good operations and is certainly a bigger player in the gold/silver mining space. What I don't like is the lagging information flow from IR. I bought low and sold with a nice profit as I did assume that FRES has to shut the mines like all the other miners in Mexico. With the semi-annual report, it was clear - it was not the case. The transparency of the company to its shareholders is lousy and therefore investors carry a higher risk as you never know exactly what is going on. Just a final anecdote - when there was one insider transaction, I think back in July 2019, I approached IR and questioned, why we do not see more insider purchases after the stock tanked in the year before and traded sideways since. Again - no response. What are all these well-paid managers doing with their compensation? It would be nice to know, why they are not buying - even at low prices. For what they need an IR when shareholders do not receive at least a little response at all?
Thanks for that sherlock. Firstly, Penoles has other mining operations. Fres have categorically stated that they have no policy of hedging gold and silver and thirdly, if Penoles separatedly chooses to hedge perhaps it is their prerogative and it would not fall into the books of FRES.
Also, from my understanding of put option is that you don't have to exercise them if the price rises. They have paid a fee for the option and that would be lost and that's it. I don't see any substantial hedging expense on our books and you certainly can't cook those without the auditors noticing. You protect the downside but not the upside. It is not a forward contract to sell at today's price.
carvegyber, when you visit the website of Penoles, the mother company and major shareholder of Fresnillo, you can read the below-copied press release. As Fresnillo is a fully consolidated subsidiary, from whom Penoles should hedge the gold and silver? Just another anecdote, Penoles reports quarterly financials and those include Fresnillo's performance. I asked the IR of Fresnillo, why it is not possible to report on top of the quarterly production report the corresponding financials as Penoles has everything included in its figures - no response. I do my proper research and can't stand up for such issues who are ignored by investors. The analysts are not better as they keep quiet and copy what others write. Transparency and shareholder rights are questionable - which is nothing more than fair.
June 23, 2020.
CONVENIENCE TRANSLATION
Announcement to Mexican Stock Exchange
Industrias Peñoles, S.A.B. de C.V. (“Peñoles” or the “Company”) informs that as part
of its usual hedging strategy and in order to reduce the volatility of EBITDA, it has
contracted the following hedging positions through derivative financial instruments
on part of its expected mining production as well as on other variables that affect
profitability. The positions are summarized below:
Exchange Rate
Silver Gold Lead USDMXN IRS ECA Loan IRS Syndicated
Loan
23,480,400 706,116 13,896 112,590,000 63,157,071 300,000,000
ounces (oz) ounces (oz) tonnes (tn) USD USD USD
Tenor Jul.'20 -
Dec.'21
Jul.'20 -
Dec.'21
Jul.'20 -
Dec.'20 Jul.'20 - Mar. '21 Until Sep. '26 Until Feb. '24
Units usd/oz usd/oz usd/tn usd % %
Avg. Rate 2.0347 2.6021
Min. Put 16.00 1,270 2,094 22.00
Max. Put 16.52 1,600 2,094 23.00
Wgt. Avg. Put 16.26 1,455 2,094 22.33
Min. Call 18.41 1,530 2,264 28.00
Max. Call 20.10 2,032 2,335 38.00
Wgt. Avg. Call 19.04 1,809 2,286 32.82
1 Includes 100% of consolidated hedging (Peñoles and subsidiaries).
Sherlock, I am afraid I will have to challenge you on the hedging claim. As far as I know, FRES doesn't have a policy of hedging apart from hedging their base metal. I would like you to support your pretty far out claim with some evidence and all the reports I have read including the last ones state that we are fully exposed the the PM prices.
Let's see what you got. I always pay attention to derampers especially the ones that support them with verifiable numbers so if you can prove the reports wrong, then I am happy to reassess. Otherwise, you seem to making a pretty fantastical claim that is contrary to what is reported in the RNS.
Sounds like you sold and couldn't get back in. Regardless of the hedging for every dollar increase in gold and silver the assets in their mines become even more valuable and you are redacting the fact that they have been on a large investment drive. In a few years the hedging will unwind and production will increase just in time for very large increases in precious metals. This is the start of a 5+ year bull market in gold and silver. come back in 2025 and complain about production then.
Brokers are not worth it, they run always behind the share price development, it was on the downside with FRES and now they move slowly the price targets up. But anyhow, I went again through the last quarterly production report - and as well as I mentioned before here in the chat - no-one is digging the numbers. By management took down the full-year production target for gold from 815-900 koz to 785-815 koz, that is a close ten per cent reduction of 7 million ounces of silver equivalent. FRES has to mine another 404-434 koz gold in the second half and 24.2-29.2 million ounces of silver in the second half. With production down in the first six months (including the non-existent lock-down of its mines), not a big thing to fulfil. To compare, in the second half of 2019 FRES mined 27 million ounces of silver and 443,500 ounces of gold. Generally another year of shrinking production! The strategy fits with shrinking investment budgets as production goes down. The current market cap of 9.1 billion £ or 11.9 billion US$ is a heavy price tag for a company that targets for 2020 a production of 1.42 to 1.51 million gold equivalent ounces, with more than half its production hedged till December 2021 - 23.48 million ounces of silver and 706,000 ounces of gold at weighted average call-strike of 19.04 US$ per ounce of silver and 1,809 US$ per ounce of gold. You find the press release at the website of Penoles, dated 23rd June 2020 - no RNS for London. No transparency over shareholders over here and a fair question, how looks then the accounting? It is a tragedy to see such a company in size being busier with itself than to look after its business!
Nearly fell off my chair! Is JPM even serious or they have a blind person in charge of analysis? The price now is 1280 and that is neutral? Surely that would be a strong sell if target is 800. Joker Portfolio Manager?
You cannot make it up. You deserve to lose your pants if you take them seriously.
JPMORGAN RAISES FRESNILLO PRICE TARGET TO 800 (750) PENCE - 'NEUTRAL'
...underwhelmed...