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The Tasiast Gold Mine in Mauritania. (Handout)
The Tasiast Gold Mine in Mauritania. (Handout)

BMO downgrades Kinross Gold, thinks Tasiast expansion won't proceed Add to ...

Inside the Market’s roundup of some of today’s key analyst actions. This post will be updated with more analyst commentary during the trading day.

BMO Nesbitt Burns analyst David Haughton is now assuming Kinross Gold Corp. will not expand the Tasiast mine in West Africa in light of the downturn in precious metals prices.

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He downgraded Kinross today to "market perform" from "outperform," as he removed the re-development of Tasiast from his production forecasts for the company.

"At current gold prices, Tasiast is estimated to yield a 5 per cent IRR (internal rate of return), which appears inadequate for the potential $2.9-billion (U.S.) investment," Mr. Haughton said in a research note. He does assume, however, that the current 8,000 tonne-per-year plant continues at Tasiast after Kinross spends $650-million on the project in 2013 and a further $180-million over the following two years.

"Kinross has made good strides to improve the costs at the existing assets and has beat consensus earnings for three successive quarters. However, BMO Research forecasts balance sheet pressure at prevailing metal prices in the absence of further cost reductions, capital conservation and possibly lower dividend," he said.

Kinross released a prefeasibility study on the project earlier this year and said it was proceeding with a full feasibility study, to be completed in the first quarter of 2014. But chief executive officer J. Paul Rollinson cautioned that Kinross will be very careful to ensure the mine makes economic sense before going ahead with construction.

The Tasiast expansion project has been a major headache for Kinross. The company booked a $2.49-billion writedown on Tasiast in January, 2012, and later in the year took a further $3.206-billion impairment charge on 2012 earnings, mostly attributable to Tasiast.

The pre-feasibility study concluded that building a single new 38,000 tonne-per-day (tpd) mill would make the most sense.

Target: Mr. Haughton cut his price target to $6 (U.S.) from $8.50. The average target is $7.14.

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Canaccord Genuity analyst Phil Skolnick, who met with a senior executive with Talisman Energy Inc. last week for a corporate update, continues to believe that the company will ultimately be sold.

The meeting with Talisman chief financial officer Paul Smith revealed that one of two new board seats has been filled by Thomas Ebbern, the chief financial officer of North West Upgrading Inc. who has a diverse background in the upstream energy business. North West Upgrading is a private firm that is building a bitumen refinery in Alberta.

The second new board member is expected to be filled within the next month by an individual deeply rooted in oil and gas, according to Mr. Skolnick.

“As such, the Talisman story continues to play out in line with our thesis, which we continue to believe can ultimately lead to sale of the company,” Mr. Skolnick said in a research note. “On that note, we also believe a for-sale sign was put up, whether intentionally or not, when President & CEO Hal Kvisle stated at the March 6th Investor Day that TLM is worth $17-$25/share. We also point out that Mr. Kvisle has acknowledged in May that he is only a temporary CEO, which also has positive implications from a corporate sale perspective, in our view.”

Meanwhile, the company’s multi-asset sale process, which is aimed to sell $2-billion to $3-billion in assets over the next year, is ongoing, “which can help provide transparency to TLM’s underlying value.”

Target: Mr. Skolnick maintained a “buy” rating with a $16 (U.S.) price target. The average price target is $13.81, according to Bloomberg data.

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Given lower prices for gold, investors should benefit from owning a defensive stock such as Franco-Nevada Corp. that generates revenues through royalty streams, said BMO's Mr. Haughton. He upgraded the company to "outperform," comforted by the strength of the company's balance sheet and its valuation compared with peers.

"The combination of a strong balance sheet, undrawn facilities ($750-million US) and experienced management provides the opportunity to seek new growth avenues," Mr. Haughton commented.

Meanwhile, Franco-Nevada's large base of projects that it receives royalties from will help shield it from project delays or production curtailments.

Target: Mr. Haughton maintained a $55 (Canadian) price target. The average target is $47.69.
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Shares in Google Inc. hit a record high today of $928 (U.S.) – and, according to Credit Suisse analyst Stephen Ju, their climb is far from over.

He expects the Internet giant to post a strong second quarter, with search spending increasing at a healthy pace. The roll out of its product listing ads is continuing to gain momentum, and the company’s focus on mobile is strongly working in its favour, he said.

“We remain optimistic on the company's positioning and ability to achieve our mid-teen revenue and growth forecasts, particularly within the context of the disruptive nature of smartphones and tablet adoption,” he said.

Target: Mr. Ju raised his price target to $1,000 (U.S.) from $982 and reiterated an “outperform” rating. The average target is $959.95.

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JPMorgan Chase & Co.’s second-quarter results were “fundamentally strong,” with notable imrovements in credit, strong capital markets, and “admirable” revenues from most of its business lines, said RBC Dominion Securities analyst Gerard Cassidy.

“In the second half of 2013, we expect continued credit quality improvement and a stable margin, with modest loan growth to drive the performance,” he said.

Target: Mr. Cassidy raised his price target to $68 (U.S.) from $55 and reiterated an “outperform” rating. The average target is $61.01.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities

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