Watch out! I think these 2 FTSE 100 strugglers could blow a hole in your portfolio

View of a gold mine from above
View of a gold mine from above

Mining stocks are notoriously volatile, their share prices shifting with the economic weather. Right now, there’s an ill wind blowing right across the sector.

Heavy metals

FTSE 100-listed Chilean copper miner Antofagasta Holdings(LSE: ANTO) and gold and silver miner Fresnillo(LSE: FRES) are down 18% and 35%, respectively, over the past year, as the slowing global economy in general, and China in particular, knock sentiment.

Both have remained steady today after their latest updates relayed positive news on production, offset by wider macro worries.

Antofagasta CEO Iván Arriagada hailed a strong end to the year with record quarterly production rising 16.8% to 220,000 tonnes. “This is at the top end of our revised guidance,” he said. Production climbed at all operations and by 68.3% at Centinela Concentrates.

Production values

Net cash costs in the quarter fell to $0.99/lb, the lowest since 2012. Arriagada said operations have achieved an improved level of stability and “we go into 2019 with real momentum for what we expect to be another record-setting year,” with production increasing by up to 9% to 750-790,000 tonnes at net cash costs of $1.30/lb.

Gold production rose 87.1% to 90,000 ounces in Q4, due to higher throughput, grades and recoveries at Centinela. So overall a bullish report against the backdrop of a slide in the copper price, from around $3.25 one year ago, to $2.74 today.

Cyclical play

City analysts reckon the £8bn giant could deliver 31% earnings growth in 2019, and 7% the year after. Its forecast yield is currently 3%, with cover of 2.4. The stock is valued at 14.9 times forecast earnings, although you could have bought it for 12.6 times in last month’s slump. As ever, much now depends on the global economy. If the pessimists are wrong, now could be a good time to buy. But if they’re right…

Fresnillo is also exposed to economic winds, but in a different way. As a precious metals producer it often does well when other miners do badly, because investors rush to buy its stock as a safe haven when storms hit the market.

That said, it hasn’t done well over the last troubled year, although it has recovered in recent weeks, along with everybody else.

Silver machine

Today, the £6.70bn group reported a 5.3% rise in annual silver production to a record high of 61.8m ounces, mainly due to the first full year of operations at the San Julián operation. However, quarterly silver production was flat at 15.5m ounces and down 3.2% over the year, due to lower volumes and ore grades at Fresnillo and Saucito.

Quarterly gold production grew 3% but was flat year-on-year, while full-year by-product lead and zinc production rose 10.4% and 35.6%, respectively. CEO Octavio Alvídrez said record silver and “strong” gold production failed to mask what was a “challenging year,” and Fresnillo is now investing in equipment and infrastructure, and intensifying its drilling programmes, to boost production.

The stock trades at 20.3 times forecast earnings, which is pricey given those challenges, although City analysts reckon earnings will rise 8% in 2019, and 15% in 2020. The yield is 2.6%, with cover of 1.9. Royston Wild reckons Fresnillo may benefit from further Brexit chaos, but I think there are brighter and shinier stocks out there.

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harveyj 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.