Agnico-Eagle and Pan American Silver: Lower Zinc Prices Negatively Affects Price Estimates

Blackmont Capital downgraded 2008 forecast prices of zinc from C$1.20 per pound to C$1.08 per pound, prompting analyst Richard Gray to review earnings per share and cash flow estimates for two zinc-rich miners under his watch, including Agnico-Eagle Mines Ltd. (AEM).

Mr. Gray attributed the drop in zinc prices to oversupply following the boom-and-bust cycle that saw countless zinc mines opened during the zinc rally of 2006 and 2007.

He wrote:

As a result we are adjusting our 2008 estimates for Agnico-Eagle, where zinc represents 28% of our forecasted revenue in 2008.

The analyst decreased Agnico's 2008 EPS estimate from C$1.13 to C$1.07 and estimated cash flow per share from C$1.98 to C$1.90.

Mr. Gray maintained a net asset value estimate of C$38.50 for Agnico, however and left unchanged, his target price on the stock of C$71. The analyst maintained his long-term estimates for the price of zinc, and also noted that, with its opening of five gold mines in the next three years, Agnico-Eagle would only be deriving 10% of its revenue from zinc by 2010. He reiterated a "hold" position on the stock.

Following the same rationale, Mr. Gray also decreased his EPS estimate for Pan American Silver Corp. (PAAS)  from C$1.82 to C$1.73 and his CFPS for the company from C$2.54 to C$2.48.

Meanwhile, Blackmont colleague George Topping downgraded his EPS and CFPS estimates for 2008 at miner Strategic Resource Acquisition Corp. [SRZ/TSX].  He now predicts earnings of C$3.68 per share down from C$3.75 and cash flow of C$0.22 down from C$0.30.

The analysts maintained their "buy" recommendations on both stocks with price targets of C$46 and C$4.40, respectively.