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Canexus: Short Term Pain For Long Term Gain

On January 14th, Canexus (OTCPK:CXUSF) announced a revised capital cost estimate for their pipeline to train loading facility which is nearing completion in Broderheim, just north of Edmonton, Alberta. Capital cost increases for projects in and around the oil sands areas seem to be a routine part of business, but the magnitude of the increase (40% on a $225 million budget) and timing of the announcement took analysts by surprise and led some to downgrade the stock.

After the announced cost overrun, the share price, which was recovering slowly after four months of heavy selling pressure, slumped drastically. In fact, the $90 million cost overrun wiped over $200 million from the market capitalization over a period of two...

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