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Inside the Market’s roundup of some of today’s key analyst actions

After an “excellent” 2019, Laurentian Bank Securities analyst Barry Allan raised his rating for Wesdome Gold Mines Ltd. (WDO-T) to “buy” from “hold” on Wednesday, feeling both the Toronto-based company’s resources and reserves are “understated.”

“Q4/19 production of 21,300 ounces was a bit shy of our 23,600 ounce [projection] due to fewer tonnes processed than we had anticipated,” he said in a research note. "In Q4/19, the mill only operated at 25 per cent of capacity. Offsetting the lower amount of tonnes processed was again a very high-grade of ore – 28.6 grams per ton compared to our forecast of 20.0 g/t. Overall, the mine continues to enjoy an exceptionally good ore grade, which is forecast to continue in 2020 and 2021.

“2020 annual guidance of 90-100,000 ounces was as expected, and in-line with our 95,800-ounce forecast. Operating cost of US$615/oz to US$675/oz was higher than our expectation of US$600/oz. As a result, we modestly increased our operating cost assumption for the year (to US$640/oz). Overall, the ore grade of material mined at the Eagle River mine is expected to be 15 g/t or better.”

With an “extensive" $70-million capital program planned for 2020, Mr. Allan sees Wesdome sitting in a “good” financial position, including year-end cash on hand of $35.7-million and drawn credit lines of $41.5-million.

“In addition, our forecast suggests operating cash flow in 2020 should exceed $90-million, meaning there should be ample financial capacity to complete a very ambitious capital program for the year without straining the balance sheet,” he said.

Pointing to increased reserves at its Eagle River mines, Mr. Allan raised his net asset value (NAV) projection for the company, leading to a $1 increase in his target for Wesdome shares to $10.50. The average on the Street is $10.72, according to Bloomberg data.


In response to a series of updates from its global peers on the impact of the coronavirus, Scotia Capital analyst Konark Gupta made “significant” initial cuts to his estimates for Air Canada (AC-T).

Keeping a “sector outperform” rating for its shares, he dropped his target to $41 from $58. The average is currently $51.64.

“Our valuation continues to be based on our 2021 estimates, which reflect a rebound from 2020,” said Mr. Gupta. "However, for investors focused on short-term risks, we note our recessionary 2020 estimates imply a fair valuation of $33, which is still above the current share price of $30, suggesting value at current levels. Our actions may prove aggressive as AC has yet to provide updates on demand, capacity and other initiatives while the impact of coronavirus and oil collapse may be short-lived vs. our base case.

“Although there could be further downside risk, we view the risk/reward as highly compelling for long-term and patient investors. We expect downside risk to $25 (down 20 per cent) if near-term fundamentals turn out to be worse than our base case, and potential upside to $60 (up 100 per cent) based on our 2022 estimates. We still see an investment grade balance sheet and positive FCF even in the most dire scenarios, which forms the basis of our continued high conviction.”


Desjardins Securities analyst David Stewart initiated coverage of three precious metals development-stage companies on Wednesday that he feels “stand out among their peers in terms of derisked projects.”

“We believe global volatility, namely the rapid outbreak of COVID-19, has caused investors to allocate more of their portfolio weightings toward gold,” he said in a research report released before the bell. “While precious metals prices could face near-term setbacks if virus fears and impacts wane and economic activity recovers, we believe the macro environment will be supportive as governments continue to offset the impacts via fiscal stimulus in the form of rate cuts. For the sector, we find the developer group increasingly interesting as producers continually struggle to replace reserves despite increased exploration spending, as global gold production declines and as pressure mounts to increase margins.”

Among trio of companies, Mr. Stewart expressed a preference for Ascot Resources Ltd. (AOT-T), calling it “significantly undervalued, especially as it has one of the highest-grade undeveloped resources in Canada, with significant infrastructure (including a past-producing mill) already on site.”

He gave the Vancouver-based company a “buy” rating with a $1.30 target for its shares. The average target on the Street is currently $1.80.

“Ascot is a Canadian development-stage precious metals mining company currently focused on advancing its Premier project in northern B.C. toward production,” said Mr. Stewart. “In terms of global resources, Ascot has the second-highest grade gold development project in Canada among deposits with at least 3 million ounces. The project boasts significant existing infrastructure, including a past-producing mill. We believe Ascot ticks many boxes for investors—located in Canada, supportive First Nations presence, high-grade resource, multimillion-ounce scale, potential for 200,000 ounces per year production profile, extensive past-producing infrastructure on site and a low capex/market cap ratio. The shares are currently trading at 0.3 times NAV [net asset value], compared with its development-stage peer group average of 0.6 times. We believe Ascot has strong potential to re-rate as the market better appreciates the quality of the Premier project. The first economic study will soon be released to the market in the form of a feasibility study, and we see this as not only a major catalyst for the stock, but also for further progress toward production through financing and permitting milestones.”

Mr. Stewart said he liked Orla Mining Ltd. (OLA-T) “for its portfolio of simple heap leach projects, largely financed status and upside optionality provided by one of the largest gold resources held by a junior.”

He initiated coverage of the company, which is also based in Vancouver, with a “buy” rating and $3.20 target. The average is $2.71.

“Orla is a Canadian development-stage company focused on advancing its two heap leach gold projects toward production. Both projects offer compelling economics with low capital intensity and high margins,” the analyst said. “Each project ranks well in terms of grades for heap leach projects when factoring in strip ratio and recovery, and combined they represent a potential production profile of 200,000 ounces per yearr. Both oxide projects also have surrounding sulphide resources, which could represent significant upside potential. In particular, the sulphide resource at Camino Rojo contains an M&I resource of 9.0mGEO grading 1.1gpt Aueq, making it one of the largest gold resources held by a development-stage company. We believe Orla stands out among many of its peers in that it has initial project financing secured, multiple projects (no single-asset discount), management and board with a proven track record of value creation, and upside optionality that is not yet fully manifested in the sulphide resources.”

The analyst said he’s “attracted” to SilverCrest Metals Inc. (SIL-T) due to “its staggering pace of high-grade vein discoveries, compelling project economics and management team which has done it all before.”

“SilverCrest is a Canadian development-stage company focused on advancing its Las Chispas silver-gold project in Mexico toward production,” he said. “Las Chispas has grown at a staggering pace since drilling began in 2016 and new high-grade veins are still being discovered. We see further resource growth as the momentum at the drill bit seems to be picking up, especially with the highest-grade vein to date—Area 200—having recently been discovered. Las Chispas offers compelling project economics given the low capital requirements and high margins. The project has already been derisked in many ways including underground development access, bulk sampling and high-grade stockpiling. We believe the shares should continue to command a peer-leading valuation as SilverCrest stands out in terms of high-margin project economics, momentum of exploration success and new discoveries, low capital requirements and resulting ease of project financing, and a management team which has done it all before. Upcoming catalysts include potential index inclusions, an updated resource and concurrent maiden reserves and feasibility study, and project financing and construction start.”

He set a “buy” rating and $12 target, which falls 4 cents below the consensus.

On the trio, Mr. Stewart said: “Amid declining global gold production, rapidly declining reserves, slowing pace of new discoveries and continued pressure for robust margins, we believe the aforementioned companies offer investors exposure to emerging mining camps with upside optionality. The gold developer group generally faces more risks than producers as it must progress through various permitting, financing, construction and ramp-up milestones.”


Though its fourth-quarter financial results largely fell in-line with his expectations, Acumen Capital analyst Trevor Reynolds downgraded Bonterra Energy Corp. (BNE-T) in response to its decision to suspend its dividend and cut its near-term capital spending.

While we continue to see value in BNE and believe they have made the prudent move by eliminating the dividend near term, the debt position leaves us cautious on the outlook in the current operating environment,” he said.

Mr. Reynolds moved the Calgary-based company to “speculative buy” from “buy” with a target of $3, falling from $5.50. The average on the Street is $3.21.

“The decrease in crude prices to the mid $30/bbl level leave us cautious on the near-term outlook given the leverage,” the analyst said.

Elsewhere, Eight Capital analyst Adam Gill dropped Bonterra to “sell” from “neutral” with a 75-cent target, dropping from $4.50.


In a separate note, Mr. Reynolds lowered Journey Energy Inc. (JOY-T) to “hold” from “speculative buy" after its fourth-quarter results fell “slightly” below his expectations.

Outlook [is] somewhat uncertain in the current commodity price environment as JOY continues to explore ways in which to improve the balance sheet,” he said.

“With the reduction in crude prices, debt levels become an increased point of focus near term.”

He lowered his target to $1 per share from $2.25. The average is $1.75.


In response to the recent energy sector volatility, National Bank Financial analysts Dan Payne and John Hunt lowered their ratings for a group of TSX-listed small-cap stocks.

They moved the following companies to “sector perform” from “outperform” ratings:

Storm Resources Ltd. (SRX-T) with a $1.25 target, down from $2. The average on the Street is $2.38.

Baytex Energy Corp. (BTE-T) to $1 from $2.50. Average: $2.38.

Gear Energy Ltd. (GXE-T) to 20 cents from 65 cents. Average: 71 cents.

Pipestone Energy Corp. (PIPE-X) to $1 from $2. Average: $2.

InPlay Oil Corp. (IPO-T) to 50 cents from $1.05. Average: $1.13.

Yangarra Resources Ltd. (YGR-T) to 65 cents from $1.50. Average: $1.80.

Athabasca Oil Corp. (ATH-T) to 30 cents from 65 cents. Average: 59 cents.

Petroshale Inc. (PSH-X) to 35 cents from $1.10. Average: 75 cents.

Leucrotta Exploration Inc. (LXE-X) to 50 cents from $1. Average: $1.75.

They moved the following stocks to “underperform” from “sector perform” ratings:

Paramount Resources Ltd. (POU-T) to $2 from $4.75. Average: $6.48.

Obsidian Energy Ltd. (OBE-T) to 50 cents from $1.20. Average: 67 cents.

Cardinal Energy Ltd. (CJ-T) to 90 cents from $2.75. Average: $2.99.

Bonterra Energy Corp. (BNE-T) to $1.25 from $4.25. Average: $4.


Though it exceeded its guidance with a “record” fourth-quarter, Raymond James analyst Brian MacArthur lowered his target for Franco-Nevada Corp. (FNV-N, FNV-T) shares to reflect its updated outlook and lower oil and gas prices.

Keeping an “outperform” rating, his target slid to US$123 from US$130. The average on the Street is US$111.26.

FNV is a gold-focused royalty/streaming company with a diversified, high-quality asset base in favourable jurisdictions," he said. "Free cash flow is expected to accelerate after final payments on Cobre Panama are made and Cobre Panama starts producing. In our view, the company also has a flexible balance sheet to finance potential future deals and support its dividend, which has increased every year.”


In other analyst actions:

National Bank Financial analyst Greg Colman raised Mullen Group Ltd. (MTL-T) to “outperform” from “sector perform” with a $9, falling from $10. The average on the Street is $10.75.

TD Securities analyst Steven Green lowered Tmac Resources Inc. (TMR-T) to “hold” from “speculative buy” with a $1 target, dropping from $7. The average is $3.11.

Stifel Canada analyst Robert Fitzmartyn cut Surge Energy Inc. (SGY-T) to “hold” from “buy” with a 75-cent target, down from $1.50 and below the consensus of $1.25.

BofA Global Research upgraded Kinder Morgan Inc. (KMI-N) to “buy” from “neutral” with a US$19 target, which falls below the US$22.27 average.

Numis Securities analyst Justin Chan raised Pretium Resources Inc. (PVG-T) to “add” from “hold” with an $11.50 target. The average is $12.

Atlantic Equities analyst Colin Issac initiated coverage of Nutrien Ltd. (NTR-N, NTR-T) with an “overweight” rating and US$50 target. The average is currently US$54.08.

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