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Message: Dundee rerates metals sector
Dundee puts sell rating on metal sector stocks
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Peter Kennedy, Stockhouse 0 Comments | 4 days ago
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Dundee Capital Markets has slapped a new sell rating on a handful of base metal sector stocks.
The move is in line with more pessimistic commodity price forecasts that the investment firm believes will flow from slowing Chinese growth prospects.
The names include Candente Copper Corp. (TSX: T.DNT, Stock Forum), Mercator Minerals Ltd. (TSX: T.ML, Stock Forum), and Thompson Creek Metals Co. Inc. (TSX: T.TCM, Stock Forum).
All three have been cut to sell from neutral, by the firm. Dundee also reiterated its sell rating for Augusta Resources Corp. (TSX: T.AZC, Stock Forum), and Copper Mountain Mining Corp. (TSX: T.CUM, Stock Forum), albeit with lower stock price targets.
In a sector outlook released this week, the investment firm says a severe credit crunch in China will push Chinese GDP growth down into the 5-8% range from earlier expectations of above 7.5%.
“As a result of the commodity price forecast changes, we have updated our target prices and recommendations where appropriate,’’ Dundee wrote in a July 8th report.
For example, Dundee has reduced its 2013 forecast for copper to US$3.24 per pound from US$3.47.
Its zinc price forecast has also been cut in 2013 to US87 cents a pound from US93 cents.
Dundee’s latest forecasts are based on the expectation that the U.S. Federal Reserve Board’s economic stimulus program will soon be tapered down.
“The bottom line is that with stimulus being tapered, China’s slowing fundamentals will likely reassert themselves and we believe miners will be forced to curtail current production even in the copper market,’’ Dundee said in its report.
Our new forecasts do not assume a credit crisis developing in China, but we could be wrong, it said.
Also, as part of its analysis, Dundee said it “stress tested” its coverage universe at commodity prices 15% below current levels. (Our new forecasts do not assume a credit crisis developing in China, but we could be wrong, it said.)
The idea was to determine which companies would find themselves in a bad situation if this commodity bear market is not over (looking at liquidity and cash flow).
It then released a summary of which companies were identified as winners and losers. Dundee went on to say that the SELL recommendation is used for stocks that are viewed as having higher levels of intrinsic risk.
In the case of Augusta Resource, for example, it said the stock is trading at a price to net asset value multiple of 0.43X compared to the sector of 0.47X.
“We believe that the risks for owning Augusta are too high, especially when there are cash generating companies that can be bought at a discount. The same can be said for Copper Mountain, Mercator, Thompson Creek, and Candente Copper, which appear to be overvalued and riskier choices in the sector.”
Augusta Resources Corp. (TSX: T.AZC, Stock Forum) traded Thursday at $2.35, down 1.29%, leaving the company with a market cap of $339.2 million, based on 114.3 million shares outstanding. The 52-week range is $3.06 and $1.63.
Dundee’s revised target for the stock is $2.30, down from $2.50.
Candente Copper Corp. (TSX: T.DNT, Stock Forum) traded Thursday at 17 cents, unchanged on the day, leaving a market cap of $20.7 million, based on 122 million shares outstanding. The 52-week range is 64 cents and 14.5 cents.
Dundee’s revised target for the stock is 60 cents, down from 80 cents.
Copper Mountain Mining Corp. (TSX: T.CUM, Stock Forum) traded Thursday at $1.60, up 6.7%, leaving a market cap of $157.7 million, based on 98.6 million shares outstanding. The 52-week range is $4.53 and $1.43.
Dundee’s revised target for the stock is $1.25, down from $1.50.
Mercator Minerals Ltd. (TSX: T.ML, Stock Forum) trading at 15.5 cents on Thursday, unchanged on the day, Mercator has a market cap of $48.9 million, based on 315.3 million shares outstanding. The 52-week range is 66 cents and 14.5 cents.
Dundee’s revised target is 15 cents, down from 30 cents.
Thompson Creek Metals Co. Inc. (TSX: T.TCM, Stock Forum) was trading at $2.97 on Thursday, down 0.34%, Thompson Creek has a market cap of $508.5 million, based on 171.2 million shares outstanding. The 52-week range is $4.49 and $2.23.
Dundee’s revised target is $2.30, down from $3.75.
The move is in line with more pessimistic commodity price forecasts that the investment firm believes will flow from slowing Chinese growth prospects.
The names include Candente Copper Corp. (TSX: T.DNT, Stock Forum), Mercator Minerals Ltd. (TSX: T.ML, Stock Forum), and Thompson Creek Metals Co. Inc. (TSX: T.TCM, Stock Forum).
All three have been cut to sell from neutral, by the firm. Dundee also reiterated its sell rating for Augusta Resources Corp. (TSX: T.AZC, Stock Forum), and Copper Mountain Mining Corp. (TSX: T.CUM, Stock Forum), albeit with lower stock price targets.
In a sector outlook released this week, the investment firm says a severe credit crunch in China will push Chinese GDP growth down into the 5-8% range from earlier expectations of above 7.5%.
“As a result of the commodity price forecast changes, we have updated our target prices and recommendations where appropriate,’’ Dundee wrote in a July 8th report.
For example, Dundee has reduced its 2013 forecast for copper to US$3.24 per pound from US$3.47.
Its zinc price forecast has also been cut in 2013 to US87 cents a pound from US93 cents.
Dundee’s latest forecasts are based on the expectation that the U.S. Federal Reserve Board’s economic stimulus program will soon be tapered down.
“The bottom line is that with stimulus being tapered, China’s slowing fundamentals will likely reassert themselves and we believe miners will be forced to curtail current production even in the copper market,’’ Dundee said in its report.
Our new forecasts do not assume a credit crisis developing in China, but we could be wrong, it said.
Also, as part of its analysis, Dundee said it “stress tested” its coverage universe at commodity prices 15% below current levels. (Our new forecasts do not assume a credit crisis developing in China, but we could be wrong, it said.)
The idea was to determine which companies would find themselves in a bad situation if this commodity bear market is not over (looking at liquidity and cash flow).
It then released a summary of which companies were identified as winners and losers. Dundee went on to say that the SELL recommendation is used for stocks that are viewed as having higher levels of intrinsic risk.
In the case of Augusta Resource, for example, it said the stock is trading at a price to net asset value multiple of 0.43X compared to the sector of 0.47X.
“We believe that the risks for owning Augusta are too high, especially when there are cash generating companies that can be bought at a discount. The same can be said for Copper Mountain, Mercator, Thompson Creek, and Candente Copper, which appear to be overvalued and riskier choices in the sector.”
Augusta Resources Corp. (TSX: T.AZC, Stock Forum) traded Thursday at $2.35, down 1.29%, leaving the company with a market cap of $339.2 million, based on 114.3 million shares outstanding. The 52-week range is $3.06 and $1.63.
Dundee’s revised target for the stock is $2.30, down from $2.50.
Candente Copper Corp. (TSX: T.DNT, Stock Forum) traded Thursday at 17 cents, unchanged on the day, leaving a market cap of $20.7 million, based on 122 million shares outstanding. The 52-week range is 64 cents and 14.5 cents.
Dundee’s revised target for the stock is 60 cents, down from 80 cents.
Copper Mountain Mining Corp. (TSX: T.CUM, Stock Forum) traded Thursday at $1.60, up 6.7%, leaving a market cap of $157.7 million, based on 98.6 million shares outstanding. The 52-week range is $4.53 and $1.43.
Dundee’s revised target for the stock is $1.25, down from $1.50.
Mercator Minerals Ltd. (TSX: T.ML, Stock Forum) trading at 15.5 cents on Thursday, unchanged on the day, Mercator has a market cap of $48.9 million, based on 315.3 million shares outstanding. The 52-week range is 66 cents and 14.5 cents.
Dundee’s revised target is 15 cents, down from 30 cents.
Thompson Creek Metals Co. Inc. (TSX: T.TCM, Stock Forum) was trading at $2.97 on Thursday, down 0.34%, Thompson Creek has a market cap of $508.5 million, based on 171.2 million shares outstanding. The 52-week range is $4.49 and $2.23.
Dundee’s revised target is $2.30, down from $3.75.
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