Analyst Slashes Aurelian Target 77% on Equador Concerns

With the future of Ecuador's mining industry very uncertain, Haywood Securities analyst Eric Zaunscherb has cut his target on Aurelian Resources Inc. (AUREF.PK) for the second time in two trading days. On Monday he slashed it all the way to C$1.40 a share from C$6.00 as the impact of the controversial mining mandate starts to sink in.

In a note to clients Mr. Zaunscherb wrote:

Ecuador has joined an exclusive but growing club of pariah states, at least from a mining investment perspective.

In addition to the problems around the mining suspension, he thinks that Ecuador could establish a national mining company by the end of the year. What does that mean? In Mr. Zaunscherb's opinion, that government-controlled firm could start to compete with existing active companies in Ecuador "and would receive a free ride in projects." This is not good.

"Perhaps we should have paid greater heed to the government's behaviour vis-a-vis Ecuador's oil and gas industry," he wrote, noting that Ecuador effectively nationalized a big chunk of it in 2006.

To reach the C$1.40 price target, he used a blended approach where he outlined three possible scenarios in which Aurelian ends up with different chunks of its flagship Fruta del Norte deposit. He also noted that Friday's closing price of C$5.04 suggests Aurelian would retain full ownership of Fruta del Norte with minimal participation from the government.

"In our opinion, this is entirely unrealistic," he wrote.