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Production at Hudbay flagship mine, the 777 in Flin Flon, Man. (Brian Pieters)
Production at Hudbay flagship mine, the 777 in Flin Flon, Man. (Brian Pieters)

Eye on Equities

HudBay sinks to 3-year lows but most analysts still say buy Add to ...

HudBay Minerals Inc. is having a rough week. Shares since Monday morning are down about 13 per cent, trading late this afternoon at $8.32 -- a three-year low.

Sinking copper prices over the past couple of days have undoubtedly turned investors away. But HudBay’s lacklustre first-quarter earnings report, released last week, hasn’t helped. Adjusted profit of 7 cents was about a nickel below consensus.

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Analysts are clearly signalling they think the stock is oversold. According to Bloomberg data, 15 of them have buy ratings, two have holds and only one has a sell. The mean price target on the Street is $15.27, close to double where it’s trading at today.

Raymond James analyst Alex Terentiew trimmed his price target today, by $1 to $12, partly in response to the equity dilution that may result from the company’s plans announced Monday to raise $400-million (U.S.) through an 8-year senior unsecured note offering. But he’s not recommending investors offload their shares, reiterating a “market perform” rating.

Mr. Terentiew is taking comfort in the expectation that the extra cash will help fill the company’s funding gap for its projects over the next few years, which he pegs at a total of $1.1-billion

“While we like HudBay’s long-term growth prospects, we are cautious on the company’s outlook given our forecast for a funding gap of $735-million (post notes issuance), which we expect will need to be filled by the end of 2015 as development of Constancia and Lalor Lake consume HudBay’s existing strong balance sheet,” he said in a note.

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A new resource estimate for Hana Mining Ltd.’s Ghanzi copper-silver project in Botswana was unexpectedly smaller and lower grade than a previous estimate, sparking a plunge in the company’s share price. “We do not believe that Hana Mining has the capacity to further develop the Ghanzi project, and the marginal economics and high cost ... are such that we believe the asset will most likely only have corporate appeal to nearby Discovery Metals,” an Australian company developing its own assets in the country.

Downside: Mr. Lampard downgraded Hana Mining to a “sell” from “speculative buy” and axed his price target to 60 cents from $3.70.

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While Claude Resources Inc.’s Seabee gold project in Saskatchewan is struggling with higher costs, it should see significant improvement in 2012 due to shaft deepening, mill expansion, and the potential for exploration success, said Desjardins Securities analyst Brian Christie. “Given the sell-off in the shares, the company could also be an acquisition target,” he said.

Upside: Mr. Christie maintained a “buy” rating but cut his price target by 40 cents to $1.60.

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Eastern Platinum Ltd.’s strong balance sheet and growth prospects position the company well to capitalize on a rise in platinum group metals prices, argued Raymond James analyst Alex Terentiew. He expects that to happen once the market’s confidence in global growth improves and risk-aversion subsides.

Upside: Mr. Terentiew maintained an “outperform” rating but cut his price target by 15 cents to 55 cents.

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The political environment for foreign investment in Mongolia remains tenuous, with a bill currently in parliament that proposes limiting foreign direct ownership in all strategic assets -- including the mining sector -- to below 49 per cent. CIBC World Markets analyst Alec Kodatsky adjusted his net asset value estimates for SouthGobi Resources Ltd. , which operates in the country, to reflect this rising political risk, and also lowered his sales forecasts.

Upside: Mr. Kodatsky cut his price target by $2 to $11 and maintained a “sector outperformer” rating.

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