Fresnillo plc explores and mines gold and silver in Mexico. The gold production accounts for 55 per cent of the activities of the firm, with the rest of the effort involved in silver mining. Other gold-mining firms have an average beta of 0.8 and a debt to equity ratio of 1/3. Silver mining is less risky and the average beta of silver-mining firms is 0.6. However, these companies tend to have more debt, with an average of 1/2.

Fresnillo has an equity market capitalization of £11.93 billion and it has no debt. Determine the expected return on Fresnillo’s shares if the expected return on the FTSE 100 is 12 per cent and the risk-free rate is 3 per cent. (40 marks)