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Lundin's Zinkgruvan zinc, lead and silver mine in Sweden. Lundin has gone so far as to force Equinox to retract its estimate for copper reserves in its prized Lumwana mine in Zambia. (Petter Koubek/Bloomberg News/Petter Koubek/Bloomberg News)
Lundin's Zinkgruvan zinc, lead and silver mine in Sweden. Lundin has gone so far as to force Equinox to retract its estimate for copper reserves in its prized Lumwana mine in Zambia. (Petter Koubek/Bloomberg News/Petter Koubek/Bloomberg News)

Eye on Equities

As zinc market tightens, big upside seen for Trevali Mining Add to ...

Versant Partners analyst Anthona Curic has bolstered her outlook for the price of zinc - and suggests speculative-oriented investors take a look at Trevali Mining Corp. as a way to tap the sector's improving fundamentals.

In a report titled "The next big zinc thing," Ms. Curic sees a potential one-year return of more than 160 per cent in Trevali stock, which has lost almost half its value since the start of the year.

With its recent acquisition of Kria Resources, the company now has two near-term zinc polymetallic production projects: Halfmile-Stratmat in New Brunswick and Santander in Peru. Halfmile-Stratmat is expected to enter production this September; Santander by early 2012.

It also recently optioned the Huampar property in Peru that could add to its production growth.

"In an environment where zinc prices are finally garnering support, due to zinc producers and supply disappearing, Trevali Mining is poised to take the lead as an intermediate producer and attractive investment," she said.

Versant now sees prices for zinc - used to coat steel to prevent corrosion - averaging $1.07 (U.S.) per pound this year, up 7 cents from previous forecasts. Next year, it expects an average price of $1.15, up from $1.05.

Upside: Ms. Curic, who just concluded an updated net asset valuation of the company, raised her target price to $4 from $2.10 and is maintaining a "buy (speculative)" rating.

She cautioned, however, that the company needs to raise funds to complete its current capital program and start up the new mines. That could result in an equity offering that may dilute the stock price and result in more conservative price gains.

The report did not mention the risks posed by Peru's new government, which cancelled one of Bear Creek Mining Corp's silver projects in the country last month in the aftermath of anti-mining protests that had turned deadly. Investor concerns about the new regime contributed to recent selling pressure in Trevali stock.

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Income-oriented investors "will do well" buying shares of IBI Group Inc. at current levels, argued Raymond James ltd. analyst Frederic Bastien. IBI, with a healthy yield of about 8 per cent, has a proven partnership model with a world-leading architectural practice, and its acquisition Monday of Boston-based Carol R. Johnson Associates will significantly bolster IBI's presence in the U.S. and enhance its reach in China, he said.

Upside: Mr. Bastien rates IBI Group as an "outperform" with a price target of $16.50.

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Karnalyte Resources Inc. is likely to report a big increase in estimated resources later this year at its Wynyard potash project in Saskatchewan, Dundee Securities Corp. analyst Richard Kelertas said after recent meetings with management. He believes there's a good chance that there can be magnesium co-product sales and expects operating costs to come down considerably.

Upside: Mr. Kelertas rates Karnalyte as a "buy, high risk" with a price target of $20.

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DragonWave Inc. , which pre-announced it will report a soft fiscal first quarter on Wednesday, needs to secure more large contracts to drive revenue growth or make substantial cost-reduction moves, commented RBC Dominion Securities Inc. analyst Steve Arthur. The provider of wireless equipment is expected to provide a full strategic update during a conference call on Thursday, which will be key to the stock's future outlook, he added.

Upside: Mr. Arthur rates the company as a "sector perform-speculative risk" with a $6.50 price target.

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The U.S. Army Corps of Engineers has informed Romarco Minerals Inc. that it will require more detailed environmental permitting for its Haile mine in South Carolina, which will delay the granting of permits by 12 months, noted RBC Dominion Securities Inc. analyst Michael Curran. He still expects Romarco to successfully permit the gold project, but doesn't expect mine start-up now until the second half of 2014.

Downside: Mr. Curran downgraded Romarco to "sector perform" from "outperform" and cut his price target by 75 cents to $2.25.

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