Could this depressed FTSE 100 stock outperform the index in 2025?

At the start of 2024, gold was hovering around the $2,000 mark. 12 months later, the price of the yellow metal has skyrocketed by 33%, comfortably outperforming the price of the yellow metal. FTSE100. The question I have now is how long it will be before precious metals mining stocks really start to take off.

Gold and silver miner

Since Centamin was acquired by AngloGold Ashanti Earlier this year, there weren’t many purely UK-listed precious metals mining companies to choose from. But one company I’ve liked for a while is Fresnillo (LSE: FRES).

Unlike many of his peers, Fresnillo mines both gold and silver; indeed, it is the largest primary silver producer in the world.

This year, the price of silver has significantly underperformed gold. Yes, the metal surged to trade in the low $30 range. Still, this is significantly lower than its all-time high of $50 last seen in 2011. But silver is like a coiled spring and when it moves, it’s literally a move you miss.

The Unique Attributes of Money

One of the main reasons I have gold mining stocks in my portfolio is because gold is a monetary metal. As debt in Western economies continues to rise, owning a neutral asset that cannot be printed like paper money is of vital importance.

Like gold, silver is a monetary asset. It is also an asset that has always proven itself in inflationary regimes. But silver is also an industrial metal, with very diverse applications.

With its excellent electrical and thermal conductivity, silver is an essential component in both photovoltaic solar energy and electric vehicles. Demand for both products is expected to increase over the next 20 years.

About 10% of a solar panel is silver. China is a leader in the production of solar panels. But the United States is also investing heavily in technology.

In the first half of 2024, solar energy accounted for 59% of new generating capacity operating in the United States. The following chart highlights the growing importance of solar energy in the U.S. energy mix.

Source: United States Energy Information Administration

Risks

As a relatively small precious metals mining company, the Company’s stock price may exhibit large fluctuations in volatility. For example, when silver and gold prices surged earlier in the year, its stock price rose 50% in two months, only to collapse as metal prices were falling.

Soaring raw material costs, including diesel and explosives, have hurt its margins. But as the price of its products increases, I expect margins to improve significantly next year.

Unlike many of its larger counterparts, it invests heavily in exploration. The challenges of carrying out such activities are enormous. If a new mine does not materialize in the coming years, it could be disastrous for shareholders.

Investors remain cautious about purchasing miners. But for me, mining stocks represent one of my most compelling stocks. In my opinion, when sentiment towards an industry as a whole is so low, that’s when the greatest opportunities present themselves.

I’ve been buying huge chunks of Fresnillo stock throughout 2024. If I wasn’t already so invested, I’d be buying more of its cheap stock today. But I think investors should consider the stock as part of a diversified portfolio.