Keeping a Tab on Ratings Changes in the Intermediate Gold Space



Changes for Agnico Eagle Mines

There haven’t been any recommendation changes for Agnico Eagle Mines (AEM) since October 2016. On October 25, 2016, Raymond James upgraded Agnico from “market perform” to “outperform.” On February 3, 2017, Canaccord Genuity raised Agnico’s target price from $75 Canadian to $77 Canadian. Most of the downgrades that have happened to this stock in 2016 have been due mostly to analysts seeing a fuller valuation.

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Ratings changes for Yamana and Iamgold

Credit Suisse downgraded Yamana Gold (AUY) from “outperform” to “neutral” on January 13, 2017. It also lowered the stock’s target price to $4 from $4.50.

It’s worth noting that workers from El Peñón, Yamana’s Chilean mine, went on strike in January 2017. Several analysts have commented on this development and its impact on the estimates. TD Securities believes that “El Penon is expected to produce approximately 308k oz Aueq in 2016, representing roughly 23% of gold equivalent production. The El Penon mine accounts for approximately 29% or $1.18/share ($1.1 billion) of our total corporate NAV of $4.02/share. … These mine strike shutdowns are usually resolved within a couple of weeks and typically do not have any material impact on valuation.”

Macquarie, on the other hand, reported, “Yamana Gold (AUY), Neutral, price target $4): With the disclosure of a strike at El Penon (~25% of our operating NAV, as well as gold equivalent production for 2017), we see potential for a material impact on free cash flow. With a financing overhang, high leverage (2.5x), and a NAV that drops from $3.50/share (on our price deck) to ~$1.50/share using spot prices, we would prefer exposure to higher-growth intermediates, or defensive large-caps (Agnico Eagle Mines (AEM), Silver Wheaton (SLW), Franco-Nevada (FNV)).”

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Credit Suisse downgraded Iamgold (IAG) from “neutral” to “underperform” on January 13, 2017. When it provided its “neutral” rating in November 2016, the firm mentioned tailwinds and headwinds to IAG stock. Incremental positives were mainly related to the early-stage testing of the Essakane heap leach and the potential upside to Rosebel through Saramacca and other soft-rock sources. Headwinds, on the other hand, included higher-than-expected costs at Westwood and lower-than-expected production at Rosebel.

Eldorado’s upgrade

Eldorado Gold (EGO) received an upgrade from Merrill Lynch on September 14, 2016. It was essentially a double upgrade, with Eldorado now a “buy” compared to its previous rating of “underperform.” According to Merrill’s investment thesis for the stock, “Through the development of several projects, Eldorado has the potential to push its gold output to the 800,000 ounces level by 2020, with all-in sustaining costs ([or] AISC) falling to around $650/oz by 2020. We see the potential for regulatory issues in Greece as a risk.”

Credit Suisse downgraded New Gold (NGD) from “neutral” to “underperform” on January 31, 2017. Scotiabank also downgraded New Gold from “sector perform” to “underperform.”


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