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Analyst Says Silver Major, on Cusp of Growth, Is 'Biggest Getting Bigger'
Research Report

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A BMO Capital Markets report outlined the reasons why this precious metals producer deserves upgrading.

In a May 29 research note, analyst Andrew Kaip indicated BMO Capital Markets revised its rating on Fresnillo Plc (FRES:LSE) to Outperform from Market Perform, and increased its target price on the company to £16.50 from £15 per share. Fresnillo's stock is currently trading at around £13.15 per share.

These changes result from measuring Fresnillo against BMO's "Best in Class" criteria and are driven by these factors:

• Fresnillo is well positioned for growth. BMO expects the company's production of gold equivalent ounces to increase by about 20% between 2018 and 2020. Commissioning of the pyrites plant at Saucito and the second dynamic leaching plant at Herradura will boost production in the near term, whereas other projects in the pipeline will bolster it in the longer term. Juanicipio, slated for commissioning in 2020, is one example; a feasibility study on it is due out soon.

• Fresnillo's free cash flow should rise due to the production growth expected over the ensuing few years. "The strong free cash flow position of the company should allow it to increase dividends, continue to invest into exploration, add to its resource base and stage the next set of growth projects in its pipeline," Kaip noted.

• Fresnillo has a strong balance sheet. Kaip pointed out the company is a rarity among those under BMO's coverage in that it has net cash versus net debt, a position it is expected to maintain through construction of Juanicipio. Afterward, the miner could again build it up "pending the approval of future growth projects," wrote Kaip.

• Fresnillo's projects are in mining-friendly jurisdictions. The "world's largest silver producer and largest gold producer in Mexico," it operates in politically favorable areas, purported Kaip. "We expect the company to generally operate as a stable and consistent producer with support from the government and local communities."

About Fresnillo, Kaip summarized, "We see an improving production profile for the company, benefitting from near- and medium-term development projects. Increased production should translate into material cash flow, in our view, allowing investors to benefit from increased returns and setting the stage for the next leg of growth."

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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from BMO Capital Markets, Fresnillo, May 29, 2018

Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.

Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

For Important Disclosures on the stocks discussed in this report, please click here.

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