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Heavy machinery at First Quantum's Frontier copper mine in Fungurume, southern Democratic Republic of Congo. (KATRINA MANSON/Katrina Manson/Reuters)
Heavy machinery at First Quantum's Frontier copper mine in Fungurume, southern Democratic Republic of Congo. (KATRINA MANSON/Katrina Manson/Reuters)

Eye on Equities

UBS puts First Quantum on list of seven top stock picks Add to ...

First Quantum Minerals Ltd. isn't a name as familiar to Canadians as say, Canadian Tire or the Royal Bank. But the time has come for investors to start paying much closer attention to the global copper company, suggest analysts at UBS Investment Research.

UBS Thursday gave First Quantum a ringing endorsement by adding it to its "Canadian key call" list, which represents the highest conviction ideas of their analysts, strategists and product managers. It joins a pretty short list, made up only of Barrick Gold Corp, Canadian Tire, Cenovus Energy, Onex Corp., Quebecor and RBC.

UBS believes First Quantum Minerals offers a combination of growth and value that justifies a core position in a diversified big-cap portfolio. In particular, it expects an aggressive resumption of growth for First Quantum starting in 2012 from a project pipeline that has been boosted by recent significant exploration success at its Trident project in Zambia.

"Based on a detailed review of First Quantum's hyper-active growth portfolio, site visits and management meetings, we forecast a superior five-year CAGR (compound annual growth rate) in copper equivalent production of 19 per cent," UBS analyst Onno Rutten wrote in a note to clients.

UBS increased its assumed resource size of First Quantum's Sentinel deposit, which forms part of the Trident project, by 80 per cent, envisioning 260,000 tonnes per year in copper production by 2014. It also believes the company's Enterprise project in Zambia holds a high-grade, albeit geologically unusual, nickel deposit based on some early stage exploration.

First Quantum certainly isn't without its risks - particularly on the political side: Zambia, where the country's key holdings reside, is an emerging economy. And, as UBS notes, future exploration success at Trident - where there are no established reserves yet - certainly isn't a given. And then there's the unpredictibility of where copper prices are heading.

Upside: Mr. Rutten hiked his 12-month price target to $115 from $101.

When it comes to B2Gold Corp. , "you ain't seen nothing yet," declared a particularly upbeat sounding by Eric Zaunscherb of Canaccord Genuity. The analyst predicts shareholders could see a 41-per-cent return over the next 12 months thanks to an experienced management team, a "superb" exploration pipeline, a strong balance sheet, and the fact it's trading at 0.83 times net asset value against a junior peer average of 0.93.

Upside: Mr. Zaunscherb raised his target price by 25 cents to $3.25.

Rising commodity prices signal that the Canadian grocery sector may see inflation into 2011, which will benefit Metro Inc. and help alleviate competitive pressures, said UBS Investment Research analyst Vishal Shreedhar. Metro has efficient operations and a good long-term track record, he added.

Upside: Mr. Shreedhar hiked his 12-month price target by $3 to $50.

Celtic Exploration Ltd. has acquired substantial new land positions in Resthaven, Alta., that could hold oil and gas plays. With this, Celtic has shifted "into a new paradigm," as there is substantial upside to current reserves and production, said CIBC World Markets Inc. analyst Arthur Grayfer.

Upside: Mr Grayfer hiked his price target to $18.75 from $15.25 and upgraded his rating to "sector outperformer" from "sector performer."

TMX Group Inc. should see positive, but modest, earnings growth over the next two years after its market share in cash equity trading stabilized in 2010, said CIBC World Markets Inc. analyst Paul Holden. Derivatives markets still hold the most growth potential, but capitalizing on that potential is likely years away, he said.

Upside: Mr. Holden initiated coverage on the stock with a price target of $38.75.

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