UBS upgrades 'inexpensive' Fresnillo to 'buy'

Analysts at UBS upgraded Mexican-based precious metals mining company Fresnillo to 'buy' on Friday, noting the firm was "as inexpensive as it has been for a number of years".

The Swiss broker said Fresnillo was "well positioned" for a re-rating in 2019 following the stabilisation of "several key risks", such as potential changes to Mexican mining policy.

The analysts felt that material changes to the nation's legislation now seem "materially lower" following recent statements from Mexican mining undersecretary Francisco Quiroga - who specifically stated there would be "no retroactive changes" to mining concessions and permits.

While Senator Napoleon Gomez Urrutia has called for higher mining taxation, on balance UBS believes Quiroga's comments were likely to reduce the risk of any changes there also/

UBS also noted that after more than two years of operational disappointments at the Fresnillo mine and several medium-term production guidance downgrades, in its view, market expectations for the firm were low.

"We do not expect a material improvement at the Fresnillo mine in FY19 and we believe labour availability could remain an issue in FY19; but after weak 4Q18 results and FY19 guidance, in our view expectations are low reducing the potential for further disappointment."

In addition to the upgrade, UBS also bumped its target price on Fresnillo from 900p to 1,100p.