UPDATE 2-Mexico's Fresnillo raises $1.8 bln in London IPO

(Adds fund manager, analyst, shares, detail, background)

By Mark Potter

LONDON, May 9 (Reuters) - Shares in Fresnillo Ltd (FRES.L) fell as much as 10 percent after the world's biggest silver producer raised 905 million pounds ($1.77 billion) in a London flotation that was priced at the bottom of the expected range.

Analysts said the share fall reflected a recent retreat in precious metals prices and a lack of appetite for new issues after Czech coal miner New World Resources NWRW.L (NWRSsp.PR) raised 1.1 billion pounds in its flotation on Tuesday.

At 0915 GMT, shares in Mexico-focused Fresnillo were trading at 524 pence, down 3.8 percent from their offer price of 555 pence, but off an early low of 502 pence and giving a market value of about 3.8 billion pounds.

That should see it enter the UK's FTSE 100 index .FTSE of leading shares at the next quarterly review, in June.

Sources close to the matter told Reuters last month that Fresnillo, being floated by parent Penoles (PENOLES.MX) as it moves to focus on base metals, hoped to sell shares at between 555 pence and 700 pence.

"It's a red day for pretty much all of the majors, so it's probably a sector thing," said Fairfax analyst Marc Elliott, noting a fall in base metal prices was weighing heavily on miners such as Antofagasta (ANTO.L) and Vedanta (VED.L).

Precious metals were holding fairly steady, but silver XAG= has fallen sharply from record highs in recent weeks.

Andrew Wray, a corporate financier at JPMorgan Cazenove which advises Fresnillo, said the share pricing reflected the decline in silver and mirrored share price falls in rivals such as Hecla (HL.N) and Coeur d'Alene (CDLA.PK).

BlackRock fund manager Graham Birch said he had bought shares in the initial public offering (IPO) and was confident they would perform well over time.

"I think this is a really excellent company. We're very pleased to have it in our precious metals portfolio," he said.

MAJORITY SHAREHOLDER

Fresnillo said it would receive gross proceeds of around $900 million from the sale of 82.89 million new shares. Penoles will receive a little less from selling 80.12 million shares.

Fresnillo plans to use the money to pay down debt and to invest in its development projects.