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Fresnillo may become the go-to precious metals miner after Randgold Resources delists, says Merrill Lynch

Published: 15:48 22 Oct 2018 BST

Fresnillo
"Fresnillo has a track record of value creation," says Merrill Lynch

Fresnillo PLC (LON:FRES) could become the go-to, high-quality liquid precious metals stock in London once Randgold Resources Ltd (LON:RRS) delists as part of its merger with Canada’s Barrick Gold, according to Bank of America Merrill Lynch.

Barrick has agreed to buy Randgold in an all-stock deal valuing the African-focused miner at US$6.5bn and creating the world’s largest gold producer. The new Barrick company will be listed in New York and Toronto.

READ: Randgold Resources and Barrick Gold confirm plans for US$18.3bn merger

Merrill Lynch upgraded Fresnillo to a ‘buy’ recommendation and set a target price of 1,150p as it believes the miner could assume the mantle in Randgold’s place.

"Fresnillo has a track record of value creation by delivering growth from small, often brownfield, high-return projects," the investment bank said.

"In terms of the commodities, we see gold (and sliver) as oversold and see potential for a tactical bounce and possibly even a secular turning point as the rates cycle in the US come into question."

READ: Fresnillo reaffirms full year guidance after third quarter growth in silver and gold output

Merrill Lynch said Fresnillo is large with a market capitalisation of US$8.5bn, is liquid and is one of the highest quality precious metal producers in its coverage.

"Fresnillo has been a great growth story and has delivered almost unrivalled growth since its IPO in 2008, paying out dividends of US$2.4bn along the way."

Growth has been driven by high-value-add projects in Mexico. Fresnillo favours smaller projects, often brownfield or near mine with high net present value and returns, Merrill noted.

"Political uncertainty in Mexico with a new presidential regime still exists but appears to be grinding forward without any dramatic surprises," Merrill Lynch said. 

In afternoon trading, shares rose 1.6% to 901.8p. 

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