A number of factors have contributed to the current levels that Fresnillo shares are currently trading at, the largest being the underlying silver price in the spot market. The metal is now trading at levels roughly 20% lower than its early July highs, and 30% lower than levels reached in early August.
So what has happened? Chinese imports of physical silver are now less than 50% of what they were in February and, since China is the world’s largest consumer, this has dented global demand. Some of this slack has been taken up by a buoyant silver coin market. In the last month silver coin sales have jumped by 37%, and have taken the average monthly sales over demand from 2012, but still some 26% short of last year’s figures.
Institutional opinion on Fresnillo is far from united, with a strong bias towards ‘hold’. The shares have been oversold since the first week in September and a retest of support at 700p looks likely. As with gold we are reaching levels where the financial viability of a number of mining operations will be assessed, and that might trigger a tightening of demand capable of causing a bounce.