HSBC ups target on Fresnillo following site visit

Fresnillo has excellent assets and the medium-term outlook for free cash flow generation is strong, according to analysts.

After visiting the Mexican producer’s operations, HSBC’s Patrick Chidley and Botir Sharipov said the company “distinguishes itself from other metals and mining companies, being both high quality (low cost) and also high growth.”

Its growth assets should be able to generate “very strong” free cash-flow once they are fully up and running and capital expenditures wind down by 2018, Chidley and Sharipov said.

The Saucito operation is becoming a second flagship operation after having doubled its output. The still young mine allows Fresnillo to produce gold as a by-product at a cash cost of just $0.6 per ounce.

The all-in sustaining costs of just $719 per ounce for gold production at Herradura are also “surprisingly low”.

The best portions of the orebody at the flagship Fresnillo mine are mostly mined out, but there is still a significant reserve and a very large resource remains yet to be mined.

The Juanicipio mine is also expected to be highly profitable.

Following their site visit Chidley and Sharipov reiterated their 'buy' recommendation on the company’s stock and lifted their target price to 810p from 760p.

At 1548 BST, Fresnillo shares were up 3.3% at 698.00p.