ABX : TSX : C$19.82
ABX : NYSE
Barrick is the largest gold producer in the world and has
a portfolio of operating mines and development projects
located in the United States, Canada, Australia, Peru,
Chile, Argentina, and Tanzania. In 2012, the company’s
operating mines produced 7.42 million ounces of gold, at
total cash costs of $584 per ounce.
All amounts in C$ unless otherwise noted.
Metals and Mining — Precious Metals and Minerals
FORECAST 2014 PRODUCTION 11% DOWN, RESERVE LOSSES AT 18%
Our target price has been revised from C$20.50 to C$17.50 to reflect the
recent shift lower in the gold forward curve and to reflect our estimate
of potential reserve and mine plan changes at YE13. This report
provides an analysis of potential YE13 reserve changes on an asset by
asset basis. Based on the implied negative return to target, we have
revised our rating on Barrick from Hold to SELL.
Barrick is developing new mine plans to reflect a lower gold price
environment and maximize cash flow. We estimate 2013 gold
production at 6.36mozs, 11% lower sequentially. Cash operating
costs are expected to be only modestly lower at ~$585/oz.
We estimate that operating reserves (excluding development assets)
will have declined ~18% at year-end. While reserve grades could
potentially increase ~11%, we note that Barrick has been mining
~19% above reserve grade over the past four years.
Our 2013 EPS and CFPS estimates have been revised to $2.30 (from
$2.32) and $3.23 (from $3.07), respectively.
We have revised our target price from C$20.50 to C$17.50, which is
predicated on an above sector average 0.90x multiple to our forward
curve derived operating NAVPS estimate of C$22.34 (from C$25.65) plus
net debt and other assets. Our target multiple fully reflects Barrick’s
numerous positive attributes; we just do not see the value proposition
for Barrick at current metals prices. Barrick is currently trading at a
27% premium to its gold peers on NAV. Near term positive free cash
flow is expected to be largely utilized to finish constructing Pascua.
Posted by jackbassteam on January 14, 2014
HBM : TSX : C$8.81
HudBay Minerals is an integrated Canadian zinc and copper producer with operating assets in Manitoba, and development or exploration properties elsewhere in Canada, in the U.S., and in Peru.
All amounts in C$ unless otherwise noted.
Metals and Mining — Base Metals and Minerals
2013 PRODUCTION A LITTLE WEAK, BUT 2014 GUIDANCE IN LINE AND CONSTANCIA ON TRACK
HBM on January 8 released 2013 production and 2014 guidance. 2013 copper production’s miss against guidance is the aberration. 2014 production guidance is consistent with our forecasts. HBM confirmed Constancia’s budget and schedule, and provided surprisingly high 2014 production guidance (pre-commercial production) of 5,000-10,000 tonnes.
Our revised 2013-15E EBITDA forecasts are C$23 million, C$129 million, and C$485 million, which compare to our previous forecasts of C$32 million, C$129 million, and C$485 million. Our revised 2013-15E adj. dil. EPS forecasts are C$0.03, C$0.16, and C$1.08, from previous forecasts of C$0.07, C$0.15, and C$1.08.
Action and valuation
We are maintaining our BUY recommendation and our 12-month target of C$12.00, which is based on the average of: i) 5x our 2015E EV/EBITDA, which would imply a share price of C$11.97; and ii) our NPV10 estimate of C$11.62, (which includes C$7.79 for Constancia).
Next potential catalyst and investment risks
We are forecasting Q4/13 adjusted diluted EPS of negative (C$0.02) based on: i) payable zinc and copper sales of 24,400 tonnes and 7,800 tonnes, ii) realized zinc and copper prices of US$0.93/lb and US$3.31/lb (before treatment and refining charges, but after provisional pricing adjustments), and iii) after by-product credit costs of +US$1.41/lb of copper.
Posted by jackbassteam on January 10, 2014
Basic Resources – Mining – General Mining
Iron ore mine expansion to 350Mt unveiled
Rio Tinto management have outlined the route to fill the bulk of the 360Mt logistics capacity currently being developed A mix of brownfield expansions at various mines plus new greenfield mines at Silvergrass and, in the latter part of the decade, Koodaideri. Management is targeting 330Mt ore production in 2015 from with 350Mt capacity by 2017.
Our current estimates had assumed that management would fill the new transport capacity on roughly this timetable. Our current assumptions see the Pilbara produce 282Mt in 2014 rising to 321Mt in 2015 and plateauing at 348Mt in 2017. We had assumed a RIO share of capex of US$6.6B to develop this mine output.
The volume estimates are broadly in line with the comments from management.
We had assumed that the mining capital cost intensity would be ~US$95/tonne on top of a logistics cost intensity of ~US$50/tonne. From the comments from RIO this morning the capital cost intensity of the mining assets looks to be ~US$70 – 80/tonne or 15 – 25% lower than the earlier estimate. This, all else equal, should mean net we can expect improved cash returns on cash invested from RIO over the latter part of the decade further bolstering its appeal.
We retain our BUY recommendation and 4000p 12 month price target. We derive our price target using a mix of EV/EBITDA, P/CFPS and NAV based methodologies.
The main risk to our view is lower than expected iron ore prices. The announcement gives us increased confidence in our production forecasts for RIO through the next few years, increasing our conviction that the volume growth to
be delivered will drive falling EV/EBITDA mutliples and a rising dividend yield, underpinning RIO’s attractive current valuation.
Share performance catalyst
The next catalyst we expect is the investor presentations on Dec 2 (Australia) and Dec 11 (UK). After this we expect an agreement with the Mongolian government allowing underground development to restart will be the next operational catalyst.
Posted by jackbassteam on December 4, 2013
Metals and Mining — Exploration and Development
POSITIVE VOTE PAVES WAY FOR PLS CONSOLIDATION
The recent vote on the plan of arrangement by Alpha Minerals (AMW : TSX-V | HOLD) in favour of its acquisition by Fission Uranium in a predominantly share transaction (5.725:1, AMW:FCU) and the proposed spincos (Alpha Exploration Inc. and Fission 3.0 Corp) paves the way for the merged Fission Uranium Corp. to provide investors with a 100% exposure to the Patterson Lake South uranium project in the SW Athabasca Basin, which in our view is currently the most attractive exploration play in the uranium sector. SPECULATIVE BUY
We estimate that the merged company will have a F/D share count
of 355.2 million shares with 338.6 million in I/O as Alpha Mineral’s
options and warrants are exercised. The forecast W/C position takes
into account the equity financing closed in late October for gross
proceeds of C$12.9M, cash inflows from ITM opt/warrants from
both companies and cash outflows related to generating the spincos
(C$3M each) and transaction costs. If the FCU option/warrants are
exercised its W/C position would be C$45M or C$35M, without the
early exercise. Its W/C position would be sufficient to fund (C$20-
24M) a winter and fall 2014 drill program leading to a maiden
resource estimate by Q3/14E. We will model the impacts on the
company after the transaction is closed ( we estimate Dec. 6).
The spinco (Fission 3.0 Corp) will have C$3M in W/C and a portfolio
of assets which includes the Patterson Lake North project (27,408
ha), a JV with Azincourt Uranium Inc. (AAZ : TSX-V | Not rated),
North Shore property (55,160 ha, 100%-owned) and the Clearwater
West property (11,835 ha) where Brades Resource Corp (BRA : TSXV
| Not Rated) is earning in to a 50% stake.
Posted by jackbassteam on December 3, 2013
VALE : NYSE : US$14.76
VALE is the largest seaborne exporter of iron ore and the world’s second largest nickel producer. The company also
produces copper, precious metals, manganese, ferroalloys, potash and other fertilizers, and has a large logistics business. The majority of operations are in Brazil and Canada.
All amounts in US$ unless otherwise noted
Metals and Mining — Senior Diversifieds
VALE SETTLES BRAZILIAN TAX ISSUE, REMOVING THE VALUATION OVERHANG
Vale announced its participation in the federal tax settlement (REFIS) in Brazil for payment of amounts relating to net income of its non-Brazilian subsidiaries from 2003 to 2012. Participating in the REFIS will result in income tax payments of R$6bn at the end of November and R$16.4bn payable in 179 monthly installments.
Our revised 2013/14 adjusted EPS forecasts of US$2.69 and US$2.21 compare to our prior estimates of US$2.72 and US$2.30. Our revised 2013/14 EBITDA forecasts of US$22.0 billion and US$19.8 billion compare to our prior estimates of US$22.1 billion and US$19.8 billion.
We are maintaining our BUY recommendation but decreasing our target price to US$17.50 (from US$18.50). Our US$17.50 target price is based on the average of: i) 6x our 2014E EV/EBITDA, which would imply a share price of US$18.35, and ii) our NPV10 estimate of US$16.55.
Next potential catalyst / Key risk
Vale noted that the tax payments will be funded from operating cashflow, without requiring additional debt financing. Given our current commodity price and operating and capex forecasts, we believe that additional financing may be required by 2015. However, we expect a full update of operating and capex guidance as part of Vale Day at the NYSE
on December 2.
Posted by jackbassteam on December 3, 2013
Another Hostile Takeover (Photo credit: Wikipedia)
Inmet Mining Corporation
IMN : TSX : C$70.43
BUY Target: C$82.00
Inmet is a Canadian-based, international mining company that produces copper, zinc and gold. Its three operations include Cayeli in Turkey, Pyhasalmi in Finland, and Las Cruces in Spain. The company is currently developing the very large Cobre Panama Cu-Mo-Ag-Au project in Panama (80% IMN).
Inmet Mining released slightly better than expected Q4/12 operating results (production of 27,600t Cu and 20,700t Zn were 1.6% and 25.7%
above our forecast) and issued initial 2013 production and cost guidance that was largely in line with our estimates. We are reiterating our BUY
rating and our 12-month target of C$82.00 per share.
Our C$82.00 target is based on a 50/50 weighting of our fundamental based target and our takeover based target. Our fundamentals based target of C$74.27 is based on a 50/50 weighting of 5.0x our 2013E EV/EBITDA ($64.98) and 1x our revised 8% NPV estimate ($83.57). Our takeover
based target of C$90.67 is based on an 8.5% premium to our 10% NPV estimate of C$83.57, representing the average takeover premium realized within our coverage universe over the past two years. In light of the currently outstanding C$72.00 per share hostile takeover offer from
First Quantum Minerals (TSX: FM), in our view, the Q4/12 operating results and 2013 guidance are likely to have little impact on the shares.
We now forecast 2013E-2015E total Cu production of 112,314t, 115,168t, and 115,242t (from 115,137t, 115,168t, and 115,242t).
Inmet is currently trading at a 2013E and 2014E EV/EBITDA of 5.6x and 7.5x, and at a 15.7% discount to our 10% NPV estimate of C$83.57 per share, which compares with our mid-cap base metal producer coverage universe average of 8.1x, 6.7x, and a 16.0% discount to NPV.
Posted by jackbassteam on January 17, 2013