Mexico’s Silver King Rides Metals Rebound to $1.3 Billion Gain

  • Bailleres adds $1.3 billion to net worth as Penoles surges
  • Silver, gold prices have climbed amid shift in Fed rate bets

Metals magnate Alberto Bailleres is posting the biggest gains among Latin America’s wealthiest people thanks to a comeback in silver and gold prices.

Mexico’s second-richest man has added $1.3 billion to his net worth this year, buoyed by a surge at Industrias Penoles SAB and Fresnillo Plc, owner of the world’s largest silver mine. The 14 percent gain in the Bailleres fortune represents the biggest increase among the 10 richest people in Latin America.

Alberto Bailleres
Alberto Bailleres
Photographer: Susana Gonzalez/Bloomberg

Alberto Bailleres

Photographer: Susana Gonzalez/Bloomberg

Silver and gold are reversing three straight years of declines as investors ratchet back wagers on higher U.S. borrowing costs and seek out safe havens. The silver price is getting an additional boost from forecasts that supply will fall as demand rises for industrial applications in solar panels, mobile phones and flat-screen televisions.

“Penoles remains our preferred mining pick in Mexico,” Mandeep Manihani, an analyst at JPMorgan Chase & Co., said in a note to clients this month in which he raised his price target for to 340 pesos from 282 pesos. Improving results and higher metals prices “have brought Penoles back on investors’ radar screens.”

Penoles has surged 61 percent to 285 pesos this year. That’s the biggest increase on the benchmark IPC index of 37 Mexican stocks and more than eight times the average advance. Fresnillo has climbed 44 percent.

Safe Haven

Precious-metals prices have risen this year as worries of faltering global growth prompted traders to pare bets that the Fed would be quick to raise U.S. borrowing costs. Gold has climbed 14 percent this year while silver has advanced 16 percent.

“When the market’s confidence for the U.S. Federal Reserve to increase its interest rate went down, it was positive for gold,” Eily Ong, an analyst at Bloomberg Intelligence, said in a telephone interview. “That has helped push up the price of gold and all the precious metals a lot this year.”

Tighter monetary policy dents the appeal of precious metals, which don’t pay interest. The movement could come soon -- Fed funds futures imply a 34 percent chance of an increase in June and 59 percent for July -- which could possibly turn Penoles’ performance around. Six months ago, the odds of a Fed hike stood at 63 percent.

The improvement in the U.S. economy will probably warrant another interest rate increase “in the coming months,” Federal Reserve Chair Janet Yellen said May 27. She stopped short of giving an explicit hint that the central bank would act in June.

"Lower metals prices would mean less income for Penoles, which is why the company is permanently focused in controlling and reducing costs," the company said in an e-mail in response to questions.

‘Inflection Point’

Penoles has also benefited from an “inflection point” in first-quarter earnings fueled by improved volumes and costs, JPMorgan said. Bailleres’s other properties include an insurance company and a retailer called Palacio de Hierro.

The biggest loser has been Bailleres’s fellow countryman Carlos Slim, once the richest man in the world. Slim, who’s still by far the wealthiest person in Latin America with a $49.5 billion net worth, has seen his fortune shrink this year by 5.4 percent. He’s been hurt as Mexico’s peso has weakened the most against the dollar this year of the 16 major currencies tracked by Bloomberg.

But the weaker peso has benefited Bailleres because the metals sold by Penoles and Fresnillo are priced in U.S. currency, said Bernardo Trejo, an analyst at Invex Casa de Bolsa. Penoles produces metals such as lead and zinc in addition to silver and gold.

“The Mexican peso depreciation boosted its quarterly report,” Trejo said. “About 95 percent of its income is in U.S. dollars, so the currency effect alone made the report favorable.”

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