In a Jan. 23 research note, analyst Andrew Kaip reported Fresnillo Plc (FRES:LSE) was generally in line in terms of production for Q4/18, which resulted in the mining company meeting 2018 guidance for gold but missing guidance for silver "by a hair."
For gold production, the company exceeded both of BMO's Q4/18 and 2018 forecasts, Kaip pointed out. During Q4/18, Fresnillo produced 232,000 ounces (232 Koz), slightly above BMO's expectation of 227 Koz. This was due to stronger-than-expected performance at Herradura, but Noche Buena's output offset that in part.
During full-year 2018, Fresnillo produced 923 Koz of gold to achieve its revised guidance of 920–940 Koz. Higher grades at Herradura and Noche Buena contributed to the 2018 gold production beat.
Silver production was a mix, Kaip indicated, with output surpassing BMO's estimate for Q4/18 but not for 2018. Q4/18 silver production was 15.5 million ounces (15.5 Moz), above BMO's projected 15.2 Moz. This resulted from Cienega and San Julian faring better than anticipated while the Fresnillo mine underperformed expectations.
For full-year 2018, Fresnillo produced 61.8 Moz silver versus revised guidance of 62–64.5 Moz. Lower grades at Saucito were responsible for the 2018 silver production miss, and they are expected to continue this year.
The precious metals company will release its full-year 2018 results on Feb. 26, 2019.
As for 2019, Fresnillo guided gold production of 910–930 Koz, above BMO's figure of 890 Koz, and silver production of 58–61 Moz, below BMO's forecast of 66.7 Moz.
BMO has an Outperform rating and a per share target price of £12 on Fresnillo, which is currently trading at around £9.46 per share.
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Disclosures from BMO Capital Markets, Fresnillo, January 23, 2019
IMPORTANT DISCLOSURES
Analyst's Certification
I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 9C: BMO Capital Markets makes a market in Fresnillo in Europe
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