The election of a left-wing nationalist as Peru's next president is a big worry for mining companies with operations in the resource-rich nation, given prospects of higher taxes and royalty rates.
Shares in many companies tumbled Monday in response to the weekend poll results that gave Ollanta Humala a narrow win. Among them was Bear Creek Mining Corp. , which was down a further 8 per cent in afternoon trading today. It is particularly vulnerable to investor concerns, as its two main projects, Corani and Santa Ana, are both located in the country.
Canaccord Genuity analyst Nicholas Campbell is now considerably less optimistic about the outlook for the company's share price. The new government "significantly increases the uncertainty" over Bear Creek's Santa Ana silver project in Peru's Puno province, he noted in a research note today.
He not only slashed his valuation of Santa Ana, but also pushed back his expectations for the start up of production to 2015, "given the strong likelihood for increased taxes and royalties in Peru and the overall uncertainty associated with the Humala victory."
Mr. Humala has previously hinted at establishing a windfall profits tax, as well as increasing corporate taxes and hiking royalties on mining operations, which currently range between 1 to 3 per cent.
Downside: Mr. Campbell cut his target price to $9.50 from $13.75, but maintained a "speculative buy" recommendation.
CIBC World Markets Inc.'s Andrew Potter is joining other analysts in urging investors to stay clear of debt-ridden OPTI Canada Inc. While the oil company technically has the liquidity to last until the end of this year, it will likely decide on a strategic alternative in the near future - most likely a debt-equity swap that would leave limited or no value for equity holders, he said. "Our best guesstimate of value to current equity holders would be zero to 30 cents per share."
Downside: Mr. Potter downgraded OPTI to "sector underperformer" from "sector outperformer" and suspended his share price target.
Halliburton Co. shares have been underperforming peers because of legal concerns related to an accounting practices lawsuit, but Canaccord Genuity analyst Scott Burk believes the selling has been excessive.
Upside: Believing the stock is now trading at "an improved entry point," Mr. Burk maintained a "buy" rating, with a $61 (U.S.) price target.
Thomson Reuters Corp.'s divestiture of its Healthcare business, announced Monday and expected to close by the end of the year, should generate proceeds of $1.3-billion to $1.5-billion, according to UBS analyst Phillip Huang. "We view this transaction positively because we believe Healthcare's return would not justify the risk/amount of capital required to build scale and integrate it with TRI's platform," he said.
Upside: Mr. Huang reiterated his "buy" rating and $45 (U.S.) price target.
Crocotta Energy Inc. released "impressive" results from two Bluesky horizontal wells at its Edson field in Alberta, which should increase company production by 76 per cent to 4,000 barrels per day of oil equivalent by mid-June, said Clarus Securities Inc. analyst Kirk Wilson. "With additional Bluesky wells planned in the second half of 2011, CTA looks to be in a strong position to increase production and cash flow above our previous estimates," he said.
Upside: Mr. Wilson upgraded the stock to a "buy" and increased his price target to $3.35 from $2.90.