Analysts Applaud FNX's Launch of Gold Wheaton Corp.

Analysts are cheering the move by FNX Mining Company Inc. (FNXMF.PK) to sell a chunk of its precious metals into the new gold-stream company Gold Wheaton Corp.

RBC Capital Markets analyst Adam Schatzker said the deal should be accretive for FNX as it will unlock the premium value that precious metals receive in the equity markets. FNX was not getting that premium before, but he expects that Gold Wheaton will.

He also noted that this deal could spur a takeover offer for FNX, a company that has been a rumored target in the past.

In a note to clients, he wrote:

We do not think this [Gold Wheaton] transaction would be desirable for a company like Vale Inco or Xstrata. (FNX mines the Sudbury Basin alongside those two larger rivals.)

At the same time, UBS Securities analyst Onno Rutten noted that monetizing FNX's precious metal production could unlock about C$2.11 in value per FNX share.

Mr. Rutten wrote:

According to our preliminary estimates, the value of cash on hand and the option value embedded in [Gold Wheaton] more than offsets the lower [precious metals] revenues.

Mr. Schatzker raised his target on FNX to C$36.50 a share (from $35.50) and Mr. Rutten lifted his target to C$34.00 a share (from C$32.00). They both recommend buying the stock.

Comments

[Tom Szabo:]

Gold Wheaton is a dumb idea. Silver is often a by-product of base metal and even gold mines, but gold is seldom a by-product. Thus, there are few opportunities to buy "gold streams". Still, I suppose it is a good deal for FNX unless of course base metal prices go down while gold prices go up (which is very possible).

2008 Jun 17 06:23 PM

[356:]

Look at the management behind this and do a bit of due diligence.

2008 Jun 18 09:06 PM