2 Mining Companies With Analyst Upgrades During October 2012
Gold prices are up 10% and silver prices are up 25% since the beginning of August 2012. Based on this observation I screened for mining companies to see if there were any analyst upgrades this month. I focused my search on gold and silver miners. I only found one gold and one silver mining company with analyst upgrades this month. Here is a look at the two companies:
1. Kinross (KGC) is a Canadian-based gold mining company with mines and projects in Brazil, Canada, Chile, Ecuador, Ghana, Mauritania, Russia and the United States, employing approximately 8,000 people worldwide.
Analyst upgrades
RBC Capital upgraded Kinross Gold from Sector Perform to Outperform on October 2. RBC Capital raised the target price from $11 to $14.
Financials
The company reported the second-quarter financial results on August 8 with the following highlights:
| Revenue | $1.0 billion |
| Net income | $153.6 million |
| Cash | $1.3 billion |
| Gold production | 632,772 gold equivalent ounces |
| Production cost of sales | $725 per gold equivalent ounce |
Outlook
Due to the divestiture of Kinross' 50% interest in Crixás on June 28, 2012 for $220 million, the company's share of Crixás' full-year forecast, including production of approximately 70,000 gold equivalent ounces, has been removed from the consolidated 2012 production forecast. As a result, Kinross now expects to produce approximately 2.5-2.6 million gold equivalent ounces in 2012 from its continuing operations, compared with its previous 2012 production forecast of 2.6-2.8 million gold equivalent ounces. The company remains on track to be within its full-year 2012 production forecast range, excluding the adjustment in guidance due to the divestiture of its interest in Crixás.
Tye Burt, President and Chief Executive Officer of Kinross commented on May 29:
Crixás is a non-operated, non-core asset for Kinross. Its divestiture is consistent with our strategy of portfolio optimization, and focusing our resources on the Company's core operations and priority projects.
The company has revised its forecast full-year production cost of sales, which are now expected to be $690-$725 per gold equivalent ounce from continuing operations compared with the previous forecast of $670-$715, as a result of higher expected production cost of sales per ounce in West Africa and South America.
My analysis
The stock has a $18.5 price target from the Point and Figure chart. There are currently seven buy ratings, five hold ratings and zero sell ratings for Kinross. The stock is trading at a forward P/E ratio of 10.32 and has a 1.48% dividend yield. The 200 day moving average is currently at $9.5 which could act like a support for the stock.
2. Pan American Silver's (PAAS) mission is to be the world's largest and lowest cost primary silver mining company by increasing its low cost silver production and silver Mineral Reserves. The company has seven operating mines in Mexico, Peru, Argentina and Bolivia, including the recently acquired Dolores gold/silver mine in Chihuahua, Mexico. Pan American also owns the Navidad silver development project in Chubut, Argentina, the Calcatreu gold project in Rio Negro, also in Argentina and the La Virginia development project in Sonora, Mexico.
Analyst upgrades
Deutsche Bank upgraded Pan Am Silver from Hold to Buy with a price target of $26.00 (from $22.00) on October 2. Analyst Jorge Beristain commented:
After spending time with management, as we believe costs are turning the corner and free cash flow could surge in 2013 on higher silver prices. We are supportive of the company's (second) announced 5% share buyback and 1% dividend yield which returns excess cash to shareholders.
Financials
The company reported the second-quarter financial results on August 14 with the following highlights:
| Revenue | $200.6 million |
| Net income | $44.0 million |
| Cash | $519.8 million |
| Silver production | 6.4 million ounces |
| Cash costs | $11.85 per ounce of silver |
Outlook
The company's production guidance for the year is 24.25 to 25.5 million ounces of silver at a consolidated cash cost of between $11.50 to $12.50 per ounce of silver, net of by-product credits.
My analysis
The stock has a $39.5 price target from the Point and Figure chart. There are currently five buy ratings, three neutral ratings and zero sell ratings for Pan Am Silver. The stock is trading at a forward P/E ratio of 12.05 and has a 0.91% dividend yield. The 200 day moving average is currently at $19.5 which could act like a support for the stock.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PAAS, KGC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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