Broker snap: Little reason to hold Fresnillo, says Prime Markets

10th Dec 2013 10:44

Prime Markets has labelled precious metals miner Fresnillo as a 'sell', saying that it sees significantly downside risk for the stock in the near term.Fresnillo said on Tuesday that full-year gold production would be 8.4% lower than its previous guidance of 465,000 ounces, though it is still guiding to silver production of 41m ounces.The company also updated the market on issues relating to the suspension of its explosives permits, which is still affecting operations at at two sites in Mexico. The Ministry of Defense is still analysing information and Fresnillo is awaiting a response."Along with other miners and falling precious metal prices, Fresnillo is acting as a brake on the resources-heavy FTSE 100 at present, and with good reason," said Prime Markets' Head of Dealing, Richard Curr."The gold price continues to fall, gold funds are shedding the yellow metal with indecent haste, and to cap it all Fresnillo is between a rock and a hard place - unable to use explosives to mine a commodity that is falling in value - and as a result has had to downgrade full-year gold production by 8%."He said that with analysts predicting a $1,000-an-ounce gold price - "and in some cases $800/oz" - next year, he sees "little reason to hold miners with this level of exposure to gold and silver".The stock has been in a "wide falling trend channel" since September and is currently trading below all major support levels, including the falling 20-day moving average at 749p, the broker said. It expects the shares to hit a level of 670p in the next week or so."Until Fresnillo diversifies further, or is able to dramatically cut its fixed costs, we remain sellers into any strength, currently targeting 670p. 'Sell'."The stock was 0.88% lower at 735.50p by 10:55.BC