Fresnillo past "rough patch", Credit Suisse upgrades

6th Aug 2014 11:41

Credit Suisse has upgraded Fresnillo from 'underperform' to 'neutral', saying the precious metals miner should recover after a "rough patch".Profits at Mexico-focused Fresnillo dropped in the first half of 2014 as a result of "significantly lower" commodity prices and a sharp decline in gold production.Earnings before interest, taxes, depreciation and amortisation (EBITDA) totaled just $324.5m in the first six months of the year, down by a third on the same period of 2013, but still came in 2.1% ahead of Credit Suisse's estimates.Meanwhile, revenues dropped by 26.9% to $667.1m but were in line with forecasts and reflected the stoppage of production at the Herradura mine."We think that ore grades will stabilise in current levels, and expect Herradura to be fully re-established in the second half," Credit Suisse said.The bank said that the "storm is over" now for Fresnillo, as its hiked its target price for the shares from 646.91p to 900p."After a strong investment cycle, Fresnillo is getting to the sweet spot of growth delivery, we estimate the surge of cash flows by 2016. "We believe that there will be a significant improvement in operations, mainly coming from Saucito II cumulative production. This mine is a rising star, and has become the key of Fresnillo's growth story, we expect it to contribute 52% of silver production in 2014."The stock was 0.9% higher at 935p by 11:36.BC