Copper Prices Slumping; Targets Cut for Barrick Gold and Goldcorp

Blackmont Capital has reduced its copper forecast, sending price targets lower on Canada's gold giants. 

Precious minerals analyst Richard Gray told clients in a note that Blackmont has lowered its copper price forecast to $3 per pound for the fourth quarter of 2008 from $3.65. The research firm also now expects $3 copper until 2012. Blackmont's previous estimates were for $4 copper in 2010 and $3.50 copper in 2011. 

Mr. Gray said Barrick Gold Corp. (ABX) will be impacted by the slumping copper prices, due to its copper production at the Zaldivar and Osborne mine.

He wrote:

We are lowering our NAVPS to $29.50 (from $30); our EPS estimates by 3% (2008), 10% (2009), and 16% (2010); and our CFPS estimates by 2% (2008), 7% (2009), and 11% (2010).

As a result, he dropped his price target on the stock from C$53 to C$49, but with upside of 47% still available, he maintained his "buy" rating.

"Barrick [is] expected to benefit from a flight to quality and liquidity in the gold sector," he said. For similar reasons, Mr. Gray lowered his price target on Goldcorp Inc. (GG) from C$50 to C$45, while maintaining his "buy" rating on the stock. He said Goldcorp, which is impacted due to the copper production from the 37.5% owned Alumbrera mine, will see its NAVPS drop from $24 to $23, while his EPS estimate falls 9% and 15% in 2009 and 2010, respectively and his CFPS estimate slumps by 6% and 11% over that same period.

The analyst also cut price targets at Newmont Mining Corp. (NEM), Yamana Gold Inc. (AUY) and Northgate Minerals Corp. (NXG) due to the copper price revision. All three stocks remain recommended as "buys."

Comments

[GMiki1:]

Copper has been so variable in the past couple of years that any guess for the next three years I think would be just that, a total guess. I presume he predicates his guess on a slumping world economy rather than exact supply and demand estimates. Moreover, I find it odd to predict the price of a gold producer based mostly on copper prices rather than a combined price for gold and copper and expanding resources such as some of the above-named producers have. Whatever.

2008 Oct 05 11:03 AM

[beabaggage:]

As long as copper's primary production comes from politically/labor unstable production centers, companies with copper production in producing stable mines will be valuable. It is just a matter of time before FCX or Xstrada buys something like NXG, selling for $1.14 a share now with vast qualtities of proven reserves. Just to sit on it until prices rise. We may also be surprised this quarter to see some hedges place on some of these "unhedged" production companies locking in good prices on some production.
Long NXG, just bot more.

2008 Oct 05 11:03 AM

[NOWHEREMAN:]

Copper Inventories at the LME topped out a few weeks ago and are starting to decline. Seems to me that something is not quite hunky-dory here.

2008 Oct 05 11:31 AM

[fran:]

the analyst could not see with any precision 6 months[2Q-4Q'08] what would occur???

what validity has his forward projections contain? 6mo, 1yr, 2012??? an astute investor would foresee potential price direction; such precision in numbers--WAGS

2008 Oct 05 12:24 PM

[Pessimistic...:]

Seems like intrinsicly copper is link to BRIC countries but a stalwort in China. Eventually they will come back on board.. when they do, copper will revv a bit. Too much skepticity for a full rebound.

2008 Oct 05 06:03 PM

[http://www....:]

probably wait for a pull back to the 28 range

2008 Oct 05 06:17 PM

[Jake2:]

" . . . he predicates his guess on a slumping world economy rather than exact supply and demand estimates." A slumping world economy of course would affect both supply and demand.

2008 Oct 06 01:32 AM

[shodai:]

Barrick has already cut production in gold, and will do the same in copper. Other companies will follow to keep prices high. I don't know where this guy is coming from. These companies have already announced that if prices fall, they will cut production. Look at the demand for gold, the US mints have stopped production of their gold and silver eagle coins because of demand. Demand will not decline because the miner will just cut production.

2008 Oct 06 05:44 AM

[marxbites:]

Does anyone see any problems DCA down in HL & GG here please?

2008 Oct 06 10:40 AM