This FTSE 100 stock hasn't been this cheap for over 2 years

Shares of FTSE 100 silver mining giant Fresnillo (LSE: FRES) have been trading below 1,000p in recent weeks. It's well over two years since they were last on offer at such a low price. Here's why I believe now could be a great time to buy into the company, as well as its similarly depressed FTSE 250 peer Hochschild (LSE: HOC).

Metals prices

The current price of silver is $14.86 an ounce -- its lowest level since February 2016. It's traded above $16 for much of the intervening period, including climbing above $20 in the weeks after the Brexit vote. The price of gold, which Fresnillo and Hochschild also produce, has moved in a similar fashion. It's currently trading at $1,187 an ounce, compared with several peaks of above $1,350 during the last two years.

I'm keen on gold and gold miners at current levels, but I see particular value in exposure to silver due to the gold-to-silver ratio. This ratio, which is the number of ounces of silver it takes to purchase one ounce of gold, currently stands at 80:1. Historically, 60:1 is more normal, suggesting that silver may be even better value than gold at present.

Bright future

Hochschild released its half-year results today and reported record production during the period. Output of 19.9m silver equivalent ounces (11% ahead of last year's first-half) puts the company firmly on track to meet its full-year target of 38m silver equivalent ounces. First-half all-in sustaining costs from operations of $11.9 per silver equivalent ounce also position the company to meet its full-year cost target of $13 to $13.4 per silver equivalent ounce.

Analysts are forecasting full-year earnings per share (EPS) to come in at $0.09 (12% up on last year), followed by a 56% increase next year to $0.14 (11p at current exchange rates). At a share price of 166p -- 48% below its 52-week high of 317p -- Hochschild trades on just over 15 times next year's forecast earnings.

As well as the prospect of rising production and lower costs in the near term, the company said today that its brownfield exploration programme "has started to generate some exciting results." A key achievement in the first half was the addition of over 59m silver equivalent ounces of resources. A well-managed business, with a strong balance sheet and a bright future, the current valuation looks highly attractive to my eye, and I rate the stock a 'buy'.

World number one

Operationally, things haven't gone quite as smoothly so far this year for the world's biggest silver miner Fresnillo. Issues associated mainly with less availability of process water at one of its mines saw the company revise its full-year silver production guidance of 67m to 70m ounces down to 64.5m to 67.5m. However, at the same time it increased its gold production guidance from between 870,000 and 900,000 ounces to between 900,000 and 930,000 ounces. The net result in terms of silver equivalent ounces was that overall guidance remained unchanged.

City analysts are expecting EPS this year to be at the same level as last year's $0.65, before advancing 11% to $0.72 (57p) next year. At a current share price of 920p -- 45% below its 52-week high of 1,672p -- Fresnillo trades on just over 16 times next year's forecast earnings. Again, this is a well-run business with a strong balance sheet, and a stock I'd be happy to buy at today's level.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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