Fresnillo fulfills expectations

Fresnillo, the Mexican silver mining company and the world's largest primary producer of the metal, listed in London last May. It has recorded a 46 per cent increase in profits in the first half of this year as the price of gold and silver soared.

Silver has averaged $17.2 a troy ounce during this period. This was an increase of nearly a third on a year ago, and a rise of 37 per cent.

Fresnillo is confident of achieving 2008 production targets, and reaffirmed plans of doubling production within the next 10 years. The company's main mine has increased its total ore resources by 28 per cent. Fresnillo also said that its exploration projects and plans to boost the life span of existing mines might present the possibility of it doing even better than is presently expected.

Most important of all is that this company, because of its current performance is expected to join the FTSE100 during the next reshuffle. The Fresnillo game is not one for widows or orphans. There are great monies to be made for those who enjoy the game of watching the precious metals' price vicissitudes.

Gold and silver help to guard us all against the collapse of the flat currencies of the world - notably the dollar and the euro. The dollar is in danger because the US is spending money it is not earning. The euro, although it is underpinned by more frugal financial habits, does not have the political clout behind it to ensure its survival.

The ugly spectacle of inflation continues to rear its head in a world economy which is being saved only by Chinese rising demand. There are now manifold uses for silver in the electronics industry. The expectations among the majority of bankers and their economic advisors are that once the prices of gold and silver are again spiked up, silver prices will increase at a faster rate than those of gold. Less than a century ago, monies in both Europe and the US were backed by gold and silver.

This is no longer the case. We might be bullish as regards the prospects of Fresnillo but not to the extent that there is any chance gold and silver will be 'remonetised', even if the dollar is pushed out of its role as a leading world currency. World economic expansion cannot be allowed to depend arbitrarily on chance precious metal discoveries. Fresnillo mining shares have a future, but not the future which could result from a reversal to 19th century American ideas on the function of silver in the economy.

The last gigantic silver bull run was that of Bunker Hunt in the very early 1980s. There was a Maltese professional, who was close to the Saudi kings and Bunker Hunt when this occurred almost 30 years ago. The best light on this dramatic episode which would have involved the cornering of the entire silver market comes in Alan Greenspan's recent book The Age of Turbulence. This book explicitly warns that the world will never accept the re-monetisation of silver as this would mean massive global economic deflation.

Greenspan's words are a warning to those who tend to get over-excited about rise in silver shares or its bullion price. Silver is a demon which has to be mastered. Only clever investors can ride this demon, but a silver share price like that of Fresnillo ensconced in what is perhaps the world's most reliable index, holds less dangers than many another shares.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P.

johnazzopardivella@hotmail.com