Deutsche Bank’s Metals & Mining team is out with a large positive (100 pg.) call on the group:
DB’s outlook for commodities is increasingly bullish based on four core beliefs: emerging markets growth will remain strong, the Fed’s efforts to stimulate US growth will be successful, European sovereign risk will eventually be contained and physical fundamentals in many commodity markets are tight. On higher price deck, earnings outlooks have increased, leading the firm to increase PTs across the board and be more constructive on the space.
Rosy near-term metals price deck, with peak prices potentially by 2012. Deutsche notes they have increased their price estimates across the board with peak prices anticipated by 2012 though long-term prices remain largely unchanged (copper is an exception). Copper prices raised sharply, with 2011 and 2012 going up by 24% and 30% respectively to $4.65/lb and $5.22/lb. Iron-ore forecasts going up by ~1x as global contract pricing continues to converge with high Asia-driven spot prices and coking coal prices expected to benefit recently contracted quarterly prices and supply pressures. Gold prices expected to reach $2,000/oz in 2012 but silver prices may outshine with forecasts nearly doubling to $50/oz in 2012 from current prices. Gold to Silver ratio to narrow to 40x by 2012 from more traditional 60x on rising industrial demand for silver.
Among the names Deutsche upgrades Coeur d’Alene Mines (NYSE:CDE) to Buy from Hold with a $54 price target , representing 124% upside.
Coeur d’Alene (CDE) is a primary silver miner expected to reach ~22m oz of output in 2012. Current earnings leverage, along with its stock performance and valuation, is most tightly linked to the silver market, although gold exposure could rise to ~40% of sales by 2011 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 sources of concern. Three greenfield projects (San Bartolome, Palmarejo and Kensington) are expected to provide longer-term growth as Coeur d’Alene streamlines its focus on these larger mines. Deutsche rates Coeur d’Alene a Buy based on bullish silver price estimates which should afford significant operating leverage as 2012 earnings come in to focus.
DBAB’s 12-month Price Target (PT) for Coeur d’Alene has been raised to $54/share (+145% from prior $22/share) as a significant ramp-up in 2012 earnings estimates comes into view driven by high silver and gold prices. Firm’s revised $54/share PT is now based on 10x their revised 2012E EPS of $5.43 (versus 12x prior 2011E EPS of $1.82 earlier.
Notablecalls: This is nutso call from DBAB’s Metals team. They are no talking about $2,000/oz Gold & $50/oz Silver, both way higher than current consensus forecasts.
The 124% upside price target on CDE seems almost unbelievable.
They estimate an average of 44% upside to their revised Price Targets (PT) for their coverage, highlighting “value” golds (Newmont, 63%; Barrick, 55%), bulk plays (Cliffs, Teck and Vale), Alcoa and silver names appearing most attractive, while copper-related upsides appear limited by application of more conservative target multiples.
Anyway, CDE seems to be the posted boy of the call & will get most of the attention today. Precious metals are trading up this morning which is surely helping things.
I would not be surprised to see CDE trade up for several days, reaching $27-28 levels.