Broker snap: Fresnillo attractive in uncertain environment, says UBS

13th Aug 2013 11:14

The share price of precious metals miner Fresnillo continued to rebound strongly on Tuesday following recent falls, with UBS providing a boost after initiating coverage of the stock with a 'buy' rating and 1,250p target price.Since Fresnillo's first-half report on August 6th - in which the company reported a sharp slump in profits due to falling metals prices and production - the stock has surged by over a quarter, trading up 5.8% to 1,167p by Tuesday morning.UBS said: "Fresnillo is one of the world's lowest-cost primary silver producers, and we believe it will generate sustainable free cash flow even in a lower commodity price environment. We expect low-risk, high-return volume growth to drive an earnings recovery from 2013, and see attractive long-term growth optionality. "Following share price weakness we believe the stock offers attractive long-term value in an uncertain price environment.The broker said that gold and silver prices have stabilised following a sharp drop in the second quarter and it now sees "modest near-term upside potential".Nevertheless, it said the outlook is still "uncertain" and that policy normalisation in the US will likely results in lower or negative net gold/silver investment, putting downward pressure on prices from the start of next year.UBS also initiated coverage of sector peer Hochschild Mining on Tuesday with a 'neutral' rating and 210p target, saying that it favours low-cost and lower-risk Fresnillo. Hochschild "offers attractive operating leverage should gold and silver prices rebound", the broker said, but the risk/reward is not seen as "sufficiently compelling" at the moment.BC