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Yesterday (January 6), silver passed $80 an ounce, up more than 180% in 12 months, sending FTSE 100 a miner Fresnillo (LSE: FRES) and boarding. With the stock up 480%, would $100 silver make today’s price look like a bargain?
Resistance to gravity
Many investors are late to the silver party. Stock volatility can be bearish, and it takes iron senses to ride a wave like this.
But I prefer to look at the miner with simple calculations. Its average all-in reserve cost (AISC) is just $17 per ounce, while other mines are as low as $11 – among the lowest in the industry.
The company produces about 50m ounces of silver a year. At $80 an ounce, that equates to about $3.15bn in net income from silver alone. If silver reaches $100, the margin could rise past $4bn. And that doesn’t even include the 600,000 ounces of AISC mined gold valued at $2,000.
Every $1 rise in silver adds about $50m to profits, showing how sensitive the company is to metal prices. For long-term investors, that gain is what makes this FTSE 100 miner so compelling – volatility aside.
Drivers of silver-backed properties
Silver is not just another industrial metal as it is incredibly versatile. Unlike most elements, it sits at the intersection of technology, industry, and capital demand.
From solar panels and electric cars to electronics and high-tech weapons, silver is at the heart of modern industry. Its role in semiconductors and AI data centers is growing, with the growing demand for electricity highlighting its critical importance.
This volatility makes silver different from the periodic table: even a small increase in demand can increase prices sharply because it provides more activity in all sectors.
On the financial side, I believe that more imports today come from Asia than from the West. Countries like China have decided that the US Treasury market is no longer a guaranteed safe haven, due to concerns about long-term debt, and are instead hoarding gold and silver.
Asian investors are also big buyers, seeking returns from China’s weak economy and ultra-low interest rate environment.
When combined with ongoing supply constraints, these forces are creating a tailwind for the silver structure. Even at higher prices, the long-term case for the metal remains strong, in my opinion.
Risks to be aware of
Fresnillo faces several operational and structural hazards. Tests may disappoint, production costs may increase, and increases in labor or energy costs may erode margins.
Regulatory changes in Mexico – including fees, permits, or taxes – could affect profits if silver prices continue to rise. Political tensions may also disrupt operations or trade.
Industrial demand can fluctuate, and macroeconomic shocks can depress silver prices, hitting money flows.
Even with strong long-term fundamentals, these factors make Fresnillo a high-risk, high-reward investment, where gains and losses can be sharp and sudden.
Bottom line
A few months ago, $100 silver seemed unthinkable. While many investors fear the rally has peaked, Fresnillo’s close relationship with the metal shows how changes in silver prices play into financial performance – even if prices stabilize near current levels. For investors who follow the silver market, this is a stock that should be considered for further research as a clear example of how the price of silver translates into the performance of the company.
