UBS cuts Fresnillo and Randgold to 'neutral' after strong run

2nd Feb 2015 11:14

UBS has lowered its ratings for precious metal miners Fresnillo and Randgold Resources from 'buy' to 'neutral' after recent strong gains from both stocks.Mexico-focused producer Fresnillo offers the most attractive long-term growth potential of the large global gold miners, with attributable silver equivalent production expected to double between 2014 and 2018, the bank said.However, 2015 is forecast to be a year of peak capital expenditure resulting in negative free cash flow (FCF). Material positive FCF is not expected until 2017 or 2018.While the balance sheet remains sold, Fresnillo "now has more financial leverage in a downside commodity price scenario", UBS said.The bank reckons the valuation "now looks full" after a 15% rise in the stock so far in 2015. It held on to a 950p target price for the shares.As for Africa-based Randgold, UBS said that the risk-reward balance is now "more balanced" with the shares having jumped 25% since the start of the year.The bank said that growth momentum at the company is now slowing after five years of delivering new projects.In the absence of an improvement in gold prices, UBS said it cannot justify further expansion in the valuation with multiples already at the top of the recent trading ranges.Nevertheless, it has lifted its target for the shares from 5,400p to 5,500p to reflect changes in foreign exchange.Fresnillo and Randgold were trading down 0.7% and 0.6% on Monday morning respectively.