Fresnillo Plc YTD de-rating despite improving project portfolio & strong cash returns potential; stay OW

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Europe Equity Research

06 August 2026

Fresnillo Plc

YTD de-rating despite improving project portfolio &

strong cash returns potential; stay OW

After achieving a significant re-rating and outperformance over 2025, FRES has

underperformed its Gold Mining peers by 10% YTD and de-rated ~20% on spot EV/

EBITDA to ~6.3x over the same period. Nevertheless, we expect FRES can

outperform peers given: 1) after improving its operational performance over 2024/25,

the group’s organic project pipeline now appears more compelling, 2) we expect

FY’26 results in early 2027 could deliver another special dividend well beyond the

dividend policy. FRES has 2 brownfield projects, Herradura Valles UG & Noche

Buena, which help underpin gold output returning to >600 koz pa over the medium

term, while the Rodeo greenfield project could potentially add ~100koz pa beyond

this. We forecast FRES to reach ~$2.4bn net cash by YE’26, equiv. to ~9% of mkt cap.

Combined with FRES’ base dividend, we forecast FRES could distribute a total

dividend yield of ~10%, the highest in the EMEA Mining sector. If the market can

establish more confidence in FRES’ growth pipeline and cash return potential, FRES

could re-rate further given its ~12x pre-2018 average multiple. Updating for latest

H1’26 results & guidance, and adding the Noche Buena restart into our model (link),

we revise 2026/27E EBITDA by 0%/-1% and sit -6%/-7% vs BBG Con. We maintain

our Dec’27 PT of £47.00/sh, offering ~70% upside potential. With FRES trading at

2026/27E EV/EBITDA of 6.3x/6.1x & 8%/9% FCF yield, we reiterate our OW rating.

Gold growth prospects improving with Valles UG, Noche Buena restart &

greater confidence in greenfield Rodeo project. A key concern for many

investors over the past several years, in our view, has been FRES’ gold output

decline since 2018 and relatively shorter gold reserve life. However, Mgmt has

materially improved the near & long-term trajectory for gold output from

Herradura with the Valles u/g project, which will contribute 50-90koz pa once

commissioned by late 2027. Mgmt have also begun the restart of the Noche

Buena mine, which they expect to add 40-50koz pa with an 8 year mine life.

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