Deutsche Bank has cut its rating for precious metals giant Fresnillo from 'hold' to 'sell', saying that the current share price is pricing in a near-perfect delivery.

Full-year earnings for 2012 announced last week beat both the broker's and consensus forecasts slightly, while the dividend and cash position was well ahead.

"Fresnillo remains a good company, with quality management and high margin assets. However, we think the stock is already pricing in a near perfect delivery of their medium-term growth prospects," the broker said.

Analysts said that with the shares also pricing in a recovery in metals prices, the risk-reward is "skewed to the downside".

They said that the stock's premium against the sector could shrink due to the "near-term headwinds" of flat production, a Mexican royalty tax and an equity issuance to meet free-float requirements.

The target price has been slashed from 1,705p to just 1,300p after Deutsche Bank cut its earnings per share forecasts for 2014 and 2015 by 12% and 20%, respectively.

The estimate change was due to the slower-than-expected ramp-up of the San Julian and Saucito II projects and an increase in the tax rate to incorporate the likely introduction of a Mexican royalty tax in 2014.

Shares dropped sharply on Tuesday morning, trading 4.05% lower at 1,397p by 10:00.

BC

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