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Workers remove slag, which contain impurities, from molten metal prior to casting in the foundry at Wabi Iron and Steel Corp. (Fred Lum/The Globe and Mail/Fred Lum/The Globe and Mail)
Workers remove slag, which contain impurities, from molten metal prior to casting in the foundry at Wabi Iron and Steel Corp. (Fred Lum/The Globe and Mail/Fred Lum/The Globe and Mail)

Eye on Equities

Bulked-up Consolidated Thompson seen outperforming Add to ...

Now that Consolidated Thompson Iron Mines Ltd. has completed its $230-million convertible debenture issue, analysts are quickly reinstating coverage of the iron ore producer and at least two suggest the bulked up balance sheet is going to pay off for shareholders.

CIBC World Markets Inc. analyst Ian Parkinson is particularly bullish, reinstating coverage with a "sector outperformer" rating and a $17 price target. With iron ore prices remaining high and the company's growing production profile from its Peppler Lake and Bloom Lake operations in Labrador, Consolidated Thompson "has the cash flow and now the balance sheet to make things happen," he said.

Mr. Parkinson notes that the company trades at a discount to peers, with a multiple of 0.7 times net asset value compared with 0.9 times for other comparable companies. "As long as iron ore prices remain strong and management can deliver, we believe CLM's valuation will continue to improve against its peers," he said.

At Desjardins Securities, analyst John Redstone reinstated coverage with a "buy-average risk" recommendation and hiked his price target by 10 cents to $14 a share. He believes new supply from the Peppler project, which he expects to begin production in 2016, will be easily absorbed by demand. He forecasts a supply deficit of iron ore of at least 53 million tonnes in coming years.

Related: Consolidated Thompson shares a steal as iron ore prices firm?

Anvil Mining Ltd. should start generating substantial cash flow by mid-2011 as it commences copper production at its Kinsevere Stage II plant in the Democratic Republic of Congo, said Clarus Securities Inc. analyst Mike Bandrowski. Noting that copper fundamentals are strong and Kinsevere can generate operating profit margins of nearly 300 per cent, Mr. Bandrowski said Anvil is his favoured developing copper story.

Upside: Clarus initiated coverage of Anvil with a "buy" recommendation and a 12-month target price of $7.50 per share.

Xinergy Ltd.'s operating performance has improved markedly this year, said Canaccord Genuity analyst Gary Lampard. Xinergy, owner of thermal coal mines in the U.S., should benefit from production growth and higher industry prices, but a key risk is that it only has permits for about half of its 31 million tons of reserves, he said.

Upside: Mr. Lampard initiated coverage of Xinergy will a "buy" rating and a $3.75 target price.

Renegade Petroleum Ltd.'s third-quarter cash flow per share of 3 cents was well short of expectations amid significantly higher operating costs, said Canaccord Genuity analyst Brian Kristjansen. Renegade was faced with a lump-sum property tax payment and facility upgrade work and costs should remain high going forward, he said.

Downside: Mr. Kristjansen cut his target price on the stock by 30 cents to $4.85 but reiterated his "buy" recommendation.

Pacific Northern Gas Ltd. could be a possible takeover candidate down the road, thanks in part to its 50 per cent stake in a partnership that is pursuing the KSL pipeline project to transport gas to the proposed Kitimat LNG liquefaction terminal, said RBC Dominion Securities Inc. analyst Robert Kwan. The project has not yet received binding commitments from shippers, but Kwan estimates Pacific Northern's equity investment in KSL is worth $200-million, almost double the current market cap.

Upside: Mr. Kwan initiated coverage of the stock with a "sector perform, average risk" rating and $28 target price.

Wild Stream Exploration Inc. saw better-than-expected cash flow in the third quarter thanks to higher production and lower operating costs, noted Jennings Capital Inc. analyst Tim Murray. Successful drilling results suggest more strong results this year, he said.

Upside: Mr. Murray upgraded his target price by $1.25 to $9.25 due to increased cash flow forecasts, but lowered his recommendation to "hold" from "buy" as the stock is nearing his target.

Follow on Twitter: @eyeonequities

 
Security Price Change
XRG-T Xinergy Ltd. 0.265 0.015
6.00 %
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