Broker snap: UBS cuts Fresnillo target on Mexican mining taxes

18th Sep 2013 11:08

UBS has reduced its estimates for precious metals producer Fresnillo after the recent news about unexpected increases to mining royalties in Mexico.Measures announced earlier in the year proposed a new royalty on Mexican miners at 5% of earnings before interest, tax, depreciation and amortisation (EBITDA) with the bill due for a senate vote sometime in the second half of 2013. UBS explained that the mining tax would now become part of Mexican President Enrique Pena Nieto's fiscal reform plan and would be increased to 7.5% of EBITDA in addition to 0.5% of gold and silver revenues. Other non-mining specific levies have also been proposed, including a 10% tax on stock-market gains and dividend payments.If accepted by the lower house of congress and approved by the senate, the reforms could be implemented by January 2014."We previously incorporated a 5% EBITDA based mining royalty starting Jan 2014 into our modelling for Fresnillo. Despite opposition from mining companies and uncertainty over the specific tax calculation, we believe it is likely that the more onerous mining royalties will be imposed," UBS said.As such, the bank has reduced its Fresnillo forecasts for EBITDA in 2014 and 2015 by 4%. The target price has in turn been lowered from 1,250p to 1,150p and a 'neutral' rating has been maintained.The stock was down 2.32% at 1,016.88p by 11:06 on Wednesday.BC