Lower Gold, Copper Prices Could Negatively Affect Teck Cominco's Galore Stake; Won't Affect NovaGold's

There seems to be little question that the recently announced 50/50 partnership between Teck Cominco Ltd. (TCK) and NovaGold Resources Inc. (NG) to build the Galore copper and gold mine in British Columbia will benefit the latter, but the prospect of lower copper and gold prices in the future could spell trouble for Teck's side of the deal, according to UBS analyst Brian MacArthur.

"Based on UBS' long-term price assumptions (US$1.30/lb copper and US$440/oz gold) we find this transaction to be marginally dilutive on a [net asset value] basis," he said in a note to clients.

However, tax pools from Galore can be used to shelter Teck's existing Canadian income, he added, and should result in some incremental value.

He left his "buy" rating on Teck unchanged and maintained his $50 price target.

RBC Capital analyst H. Fraser Phillips on the other hand, said the Galore acquisition should be a long-term positive for Teck, noting the project's expected production of 432 million pounds of copper, 341,000 ounces of gold and 4 million ounces of silver annually in the first five years of its 20-year life starting in 2012.

That said, he downgraded his rating on Teck shares from "outperform" to "sector perform" because of Teck's recent strong share price. His price target of $50 remains unchanged.

Meanwhile, Mr. Phillips' RBC Capital colleague, Stephen D. Walker, told clients the partnership deal is a definite positive for NovaGold.

"We believe that partnering with a large experienced mine developer such as Teck is positive for NovaGold, and we expect that investors will have increased confidence in this partnership to successfully bring Galore into production, without major technical problems or delays, Mr. Walker said in a note to clients.

He maintained his NovaGold price target of C$20, and left his "sector perform" rating unchanged.

Canaccord analyst Graeme Currie is also bullish on NovaGold's prospects going forward and raised his price target from C$15 to C$18 while maintaining his "hold" recommendation.

Comments

[bruc2y:]

Lower gold/copper prices?

Get your head examined, then read up on monetary economics to understand the creation of $$. Then you too can understand what inflation is, and why commodities must go up iin price. It's because the world's currencies are going down dude.

2007 May 29 11:20 PM