Deutsche Bank Lowers Price Targets on Silver Producers HL and CDE; Downgrades PAAS

July 9, 2012 3:38 PM EDT
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Price: $6.09 +2.01%

Rating Summary:
    4 Buy, 10 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 35 | Down: 31 | New: 11
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Deutsche Bank lowers the price targets on Silver producers Hecla (NYSE: HL)(Hold) from $5.50 to $5.00, Coeur d’Alene (NYSE: CDE)(Buy) from $38 to $30 and Pan American Silver (Nasdaq: PAAS) from $31 to $22.

Commenting on HL, Deutsche analyst said: The company's primary growth initiative is the development of the #4 Shaft at Lucky Friday which could increase output from ~3m oz to ~5m oz and extend mine life beyond 2030. In September 2011, Hecla also adopted a silver-linked dividend policy. Pursuant to the Mine Safety and Health Administration (MSHA), Hecla was ordered to remove debris from the Silver Shaft at Lucky Friday, resulting in temporary suspension of the mine since December 2011. The company expects to resume operations by early 2013. Hecla owns exploratory properties and is conducting studies to re-open mines that operated within the last 25 years. Successful commissioning of Lucky Friday #4 Shaft and success at one or more of its exploration properties could potentially increase Hecla's silver production by ~50% over the next five years. We have a Hold rating on Lucky Friday mine shutdown overhang and lack of clarity in pre-development projects. (sees Q2 EPS of $0.02 vs. consensus of $0.05)

For CDE: Current earnings leverage, along with its stock performance and valuation, is most tightly linked to the silver market, although gold exposure expected to reach ~35% of sales by 2012 due to its Kensington gold mine in Alaska. Management has partially transformed Coeur d'Alene in terms of its balance sheet and asset quality but cost containment and project execution are still sources of concern, but are diminishing on more normalized production levels. (sees Q2 EPS of $0.35 vs. consensus of $0.30)

For PAAS, Deutsche analyst said, "On March 26, 2012 shareholders approved Pan American's deal to acquire Minefinders Corporation for C$1.5bn (a 36% premium to prior closing price). However recent developments with respect to its cornerstone Navidad project have turned out be less than appealing, with a planned provincial law at the verge of making the project economics not attractive enough to develop. We cut our rating on Pan American to Hold from Buy, given lack of clarity on growth prospects." (sees Q2 EPS of $0.33 vs. consensus of $0.39)

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