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.