Fresnillo downgraded to 'sell' from 'reduce' by Numis

Numis said the miner reported a solid first quarter performance last week, “however, at 2.27x premium to net asset value and with significant risk associated with the execution of the development profile we believe that the shares are trading at above fair value moving into a period of seasonal weakness for the precious metals”.

Fresnillo last Wednesday posted a 1.7% year-on-year fall in silver production to 12.2m ounces for the three months ended 31 March 2016, due to expected lower ore grade at the Saucito mine. The silver output included 1.2 million ounces from the Silverstream processing contract.

Gold output rose 26% to 230,000 troy ounces in the first quarter, bolstered by higher speed gold recovery from the Herradura and Noche Buena mines.

“Silver production was in line with our expectation but gold production was a 20% beat versus our expectation reflecting a higher speed of recovery and ore processed at Herradura,” Numis said.

Fresnillo expects to produce between 49 million and 51 million ounces of silver and between 775,000 and 790,000 ounces of gold this year. The company has also guided for an improvement in the silver grade at the main Fresnillo mine to an average of 242 grams per tonne. A combination of the mining of lower grade areas and increased dilution saw the silver grade fall to 220g/t in 2014.

"We view the recovery in Q1 from 222g/t in Q4 2015 as a positive step which partially offset the planned decrease in grade at the Saucito mine," Numis said.

Shares rose 3.06% to 1,043p at 1102 BST.