UBS ups Fresnillo to 'neutral' on more balanced risk/reward

UBS upgraded Fresnillo to ‘neutral’ from ‘sell’ with an unchanged target price of 1,600p saying the risk/reward was now more balanced after a 20% correction in the shares since the July peak.

The bank said following a difficult 2014/15, Fresnillo is at an operational inflection point and it expects positive momentum over the next one to two years driven in part by the resolution of issues at the Fresnillo mine and the ramp-up of San Julian in the second half of the year.

It also expects 50% production growth between 2015-19 from multiple brownfield projects that generate robust internal rates of return and pointed to unit cost reduction.

The bank said Fresnillo should move from negative/neutral free cash flow for most of the last three years to more meaningful positive free cash flow in full-year 2017/18.

Still, UBS said growth was already reflected in the stock’s full valuation, adding that it prefers Randgold Resources.

“We like Fresnillo’s low cost core silver mines and attractive growth profile but see limited valuation upside,” it said.

At 0930 BST, Fresnillo shares were down 0.7% to 1,624p.