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Eldorado downgraded on bid for European Goldfields

Investors didn't exactly cheer Eldorado Gold Corp.'s weekend announcement that it had agreed to pay $2.5-billion for European Goldfields , the owner of two undeveloped Greek gold projects. Eldorado shares plunged more than 12 per cent when markets opened Monday and haven't recovered much since.

A key concern, no doubt, is that Greece is at the epicentre of the global economic turmoil and is facing considerable social unrest and political uncertainty. It's not exactly a risk-free mining acquisition.

While feeling neutral on the all-stock bid, CIBC World Markets Inc. analyst Barry Cooper thinks these concerns are going to linger for some time and limit upside for the stock. He downgraded Eldorado today to "sector performer" from "sector outperformer," while cutting his price target by $6 to $20 (U.S.).

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"Should the acquisition of EGU be successful, the risk profile of the company will increase with exposure to Greece where taxes and operating terms are likely to fluctuate," Mr. Cooper said in a research note.

That likely means investors will turn to safer havens elsewhere in the gold sector, like Barrick Gold Corp. or Goldcorp Inc. "It is likely the shares will suffer from a lack of direction until clarity is established for timing and the total cost of bringing the assets on stream."

Furthermore, he believes the purchase will be highly dilutive to Eldorado's earnings per share and cash flow per share over the next few years. "With a market that has become short-term focused, we do not think investors will show the patience that is required for realizing value out of EGU."

Desjardins Securities Inc. analyst Brian Christie, also in a research note today, commented that the deal makes sense longer term. But he also sees shorter-term risks, ranging from construction delays to possible downward pressure on Eldorado's dividend payout. He cut his price target by $4 (U.S.) to $24 and maintained a "buy" rating.

Related: Eldorado aims to double production with European Goldfields bid


CIBC World Markets Inc. analyst Jeff Fetterly has downgraded Total Energy Services Inc. to "sector performer" from "sector outperformer," citing the stock's recent outperformance to its peer group. Since third-quarter results on Nov. 9, Total's shares have risen by 12 per cent, compared to a 3 per cent gain for the CIBC Oilfield Services 35 Index, he noted.

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Upside: Mr. Fetterly maintained a $22 price target.


First Solar Inc. provided 2012 financial guidance that was below consensus estimates amid expectations for continuing weak conditions in the solar industry. "Global macroeconomic uncertainties, coupled with an excess of module inventory continues to hurt the solar industry, and there are few signs of things improving for much of 2012," commented Brigantine Advisors analyst Ramesh Misra.

Upside: Mr. Misra cut his price target by $20 to $40 (U.S.) but retained a "buy" rating, noting that First Solar will likely remain the only solar company to be profitable in 2012.

Related: First Solar shares tumble on revised profit outlook

Related: Buffett warms to solar with purchase of First Solar plant

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Related: Solar power boom hits a wall


La Mancha Resources Inc. is one of the few junior gold producers with a positive share price performance in 2011, and the company – with a solid balance sheet and significant growth profile – is in a strong position to outperform again in 2012, said Canaccord Genuity analyst Nicholas Campbell. "LMA continues to trade at a significant discount to peers, which we believe is primarily the result of the relatively limited trading liquidity for the company. If trading liquidity improves, we would expect to see a revaluation in line with other junior gold producers," he said.

Upside: Mr. Campbell maintained a "speculative buy" rating and raised his price target by 15 cents to $4.


Canaccord Genuity analyst John Gerdes has upgraded Ultra Petroleum Corp. to a "buy" from "hold," citing a recent meeting with senior management that provided him with greater confidence that the company "is indeed at a productivity inflection point." He believes Ultra Petroleum will be able to modestly surpass its preliminary 2012 production guidance and notes valuation appears attractive after shares underperformed the sector this year.

Upside: Mr. Gerdes raised his price target by $3 to $53.

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