ARND WIEGMANN/Reuters
Market Blog's roundup of some of today's key analyst actions
Shares in AuRico Gold Inc. are soaring today, up more than 15 per cent on the TSX, as investors cheer the company's decision to sell off a troubled Mexican gold mine to a company owned by Carlos Slim, one of the world's richest men.
AuRico disclosed the sale of the Ocampo mine, as well as adjacent exploration projects and a 50 per cent stake in the Orion project, to Minera Frisco in the post market on Tuesday. It will raise $750-million, helping the company to pay off debt and invest in growth opportunities and fund ongoing projects.
Canaccord Genuity analyst Rahul Paul was quick to upgrade the stock to a "buy" from a "hold," while jacking up his price target to $9.50 from $6.50 (U.S.).
"The sale should substantially improve the company's balance sheet," Mr. Paul commented. That, he notes, should provide the company with enough cash to fund the underground development at Young Davidson, a low-cost, long-life operation in northern Ontario. "In addition, we expect that the company should have sufficient financial flexibility to initiate a dividend policy in the near-medium term."
A dividend is indeed a pretty tantalizing prospect for income-hungry investors, and likely aiding in the stock's rally today. Shareholders aren't likely to miss the Ocampo mine. A capital-intensive project that has generated only limited free cash flow, it had been the source of the company's recent operational shortfalls.
"The sale should reduce volatility and increase predictability of quarterly results – more desirable from a capital markets standpoint," Mr. Paul commented. "The transaction also highlights management's commitment to capital rationing and to generate attractive returns for shareholders (as op posed to simply growing larger) and should help substantially improve management's credibility."
Mr. Paul also believes the resulting stronger balance sheet should increase the company's attractiveness as a takeover target.
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Canaccord is also feeling more bullish on the gold sector in general, increasing its price projections today for the metal for the next several years. In 2012, it projects an average gold price of $1,683 an ounce, up from $1,661. In 2013, it sees it rising to $1,850, up from $1,725. And in 2014, it now sees gold closing in on the $2,000 mark, forecasting an average price of $1,950. It believes prices will peak at $2,000 this decade.
The new estimates resulted in several price target hikes for stocks on the Canaccord radar screen:
Timmins Gold Corp's target was raised to $2.35 from $1.65 (although Canaccord downgraded its rating to "sell" from "hold" due to recent price appreciation; Alexco Resource Corp.'s target was increased to $9 from $8.25; and Sandstorm Gold Ltd.'s target was raised to $15.25 from $12.75.
Centerra Gold Inc.'s target went way up, $16.50 from $8.70, and its rating upgraded to "buy." In addition to the higher gold price forecasts, the upgrade reflected Canaccord's increased confidence that Centerra won't face Kyrgyz government interference at its Kumtor deposit. A parliamentarian who earlier this year had called for a state commission review of Kumtor has lost much support after he was accused of unrelated fraud charges, Canaccord noted.
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Shares in Horizon North Logistics Inc., which leases remote camps to the oil patch, have risen about 35 per cent since the start of August. Raymond James analyst Nick Heffernan believes the stock will continue to outperform, as future demand is expected to remain strong for modular beds in Western Canada. "The market has recently been demonstrating a willingness to pay for oil sands-oriented growth and is taking note of Horizon's execution and cash flow generation," he commented.
Upside: Mr. Heffernan raised his price target to $9.75 from $8.50.
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Novus Energy Inc., a junior oil and gas producer, has increased its credit facilities by $20-million to $85-million to help fund future capital programs. "The credit increase provides us comfort with our growth forecast for next year," commented CIBC World Markets analyst Arthur Grayfer.
Upside: Mr. Grayfer raised his price target by 15 cents to $1.10 and reiterated a "sector performer" rating.
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Eli Lilly & Co. shares have sprinted higher since the end of August, raising question whether the stock is due for a pullback. BMO Nesbitt Burns believes the rally is sustainable, given investors' insatiable appetite for yield and hope that Lilly's drugs under development will achieve successful trials. "We believe that LLY shares should stay near current levels as long as Lilly is able to deliver more mixed results for its late-stage pipeline that keeps investors' hopes alive that, at some point during the next two to five years, there will be some high-value drug that will drive earnings growth and sustain the dividend," BMO commented.
Upside: BMO raised its price target by $8 to $50 (U.S.) and reiterated a "market perform" rating.
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Darcy Keith