Capstone Mining (CS)

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Haywood names Detour Gold, Capstone Mining, B2Gold as top picks this year

http://www.mineweb.co.za/mineweb/view/mineweb/en/page67?oid=95396&sn=Detail

Haywood Securities analysts see many positives that should benefit gold and silver this year, and forecast a modest recovery in global base metals demand.

Author: Dorothy Kosich
Posted: Thursday , 07 Jan 2010

RENO, NV -

Haywood Securities top metals and mining picks this year are Detour Gold (TSX: DGC), Alamos Gold (TSX: AGI), Capstone Mining (TSX: CS), Farallon Mining (TSX: FAN), B2Gold (TSX: BTO), and Bear Creek Mining (TSX: BCM).

Metals and mining analysts Stefan Ioannou, Geordie Mark, Kerry Smith and Chris Thompson said Wednesday, "Gold continues to perform well, and we see many positives that should be supportive over the course of 2010."

"Additional concerns over the pace of a global economic recovery should also provide strong investor interest for both gold ETFs and gold equities," they advised. Haywood's estimated 2010 gold price is currently US$1,000 per ounce with spot gold currently around US$1,125 per ounce.

The analysts also forecast a silver price of US$15.25 for this year versus a spot price of $17.50/oz.

BASE METALS

In their analysis, Haywood said economic indicators suggest a modest recovery in global base metals demand which should help support base metal prices going forward.

Copper

In the short term the analysts expect copper prices will decline from their current levels "as a result of relatively modest overall fundamental demand growth coupled with high inventory levels-we note our 2010E average copper price forecast of US$2.75 per pound, London Metal Exchange inventory levels increased considerably during 2009, closing the year at approximately half a million tonnes-the highest levels since April."

"Over the longer term, we maintain our bullish outlook relative to historical levels and believe that U.S.-driven sentiment for soft demand will be overshadowed by global growth over the next two to three years, specifically in China, Asia, and India," they said.

"We are forecasting a decline in copper prices after 2011, reaching our long-term estimate of US$2.25 per pound in +2013 as new mine production comes on line," they added. "However, we continue to believe future mine production will depend largely on lower grade mines, which will redefine the industry's cost regime."

Zinc

Haywood has forecast an average zinc price of US$1 per pound this year, followed by an average zinc price of $1.15 in 2011. ‘We are forecasting that zinc prices will decline after 2011, reaching our long-term estimate of US$0.95 per pound in +2013," the analysts predicted. "Zinc prices could be volatile over the medium term, as new supply is not evident, and older mines are closed or mine lower grades."

Lead

The analysts estimate that lead will average US$1/lb this year and increase to $1.15/lb in 2011, then decline to a long-term estimate of 95-cents/lb in +2013. "The International Lead and Zinc Study Group forecasts lead consumption to increase by 3% in 2010," they said. "Additionally, Brunswick, one of the largest lead/zinc mines in the world, will close by the end of 2010 and provides further support for our positive outlook for both lead and zinc."

Nickel

"Reduced mine supply from production cutbacks announced last year should lead to a tight nickel market, and we anticipate nickel prices will increase to US$9 per pound in 2011, declining to our long-term estimate of US$7.50 per pound in +2013," the analysts said.

"The nickel market will be well supplied going forward, with production re-starts from Vale Inco (10% of world supply) once the strike is settled, another 4-5% from new mines coming on stream (Santa Rita and Talvivaara) and another 200,000 tonnes of new production (15% increase) under construction, including Koniambo, Ambatovy, Onca Puma and Barro Alto. In addition, the nickel pig iron produced from laterites in the Philippines and Indonesia continues to drop in cost and this material is also available to supply the nickel market going forward."

Molybdenum

Haywood predicts that molybdenum prices will increase to US$15/lb this year, and $20/lb in 2011, declining to a long-term estimate of $15/lb in +2013. "Looking ahead, we believe global molybdenum roasting capacity, currently at 480 million pounds per annum, is an important consideration, with some (arguably bullish) market commentators forecasting world consumption in excess of 480 million pounds within the next two years," the analysts said. "Looking further ahead, we expect growing demand fundamentals to dominate the molybdenum market, noting that the current list of greenfields projects lacks a significant number of large-scale ventures to potentially fill the expected supply deficit."

HAYWOOD TOP PICKS

Metals analyst Kerry Smith's top pick this year is Detour Gold, which he rated Sector Outperform and set a target price of $20.25 per share. "We remain bullish on the outlook for the company and believe that management will continue to deliver on reserve growth and are committed to development of this asset [the Detour Lake gold project in north-eastern Ontario," he wrote.

Smith suggests Detour Lake's gold reserves will increase from 8.81 million to at least 10 million ounces in the next resource/reserve update due to be released in the current quarter. "We believe investors will benefit from continued de-risking of this large gold deposit in Canada as Detour completes a full feasibility in Q2/10," he said. "Most importantly, the deposit is large, 100% owned, and has good infrastructure, making Detour Gold an ideal candidate for consolidation."

Top pick #2 for Smith is Alamos Gold, which he rated Sector Outperform with a $14/sh target.

"Alamos has completed a number of operational improvements in recent years, having a positive effect on crushing rates, increased leach recoveries, and lower operating costs at its 100% owned Mulatos mine in Mexico," Smith noted.

Meanwhile Alamos closed the acquisition of the Agi Dago and Kirazli project in Turkey last month. The two projects combined have a measured and indicated oxide resource of 1.3 million ounces of gold and 8.4 million ounces of silver.

Haywood expects Alamos to produce 200,000 ounces of gold in 2010 at total cash costs of US$325 per ounce increasing production to 350,000 ounces of gold production at total cash costs of $265/oz nu 2012.

Analyst Stefan Ioannou's top pick is Capstone Mining, which he rated Sector Outperform with a $3.50 per share target. "Low-cost producer status in low-risk jurisdictions, coupled with a strong balance sheet and proven management, separates Capstone from its peers," he said. "We believe recent share price weakness continues to provide a buying opportunity. Hence our SECTOR OUTPERFORM rating."

"In the sea of copper ‘development' stories, Capstone has successfully made the transition from explorer to producer ahead of many peers, providing investors with immediate exposure to positive cash flows from two low-cost mines, coupled with the ‘insurance' of a net-debt-free balance sheet," he added.

In his analysis, Ioannou highlighted the 45 million of annual copper production from Capstone's Minto mine in the Yukon and the 40 million to 45 million of copper production expected this year from the Cozamin mine in Mexico.

Ioannou second top pick is Farallon Mining, which he rated Sector Outperform with a target of 75-cents per share. He is particularly bullish about Farallon's G-9 polymetallic mine in Guerrero State, Mexico.

"G-9's low-cost production profile positions Farallon for immediate free-cash flow generation and represents and investment opportunity that has been overlooked and undervalued by the market," he said.

Analyst Chris Thompson's top pick is B2Gold Corp., which he rated Sector Outperform with a target of $1.75/sh. "B2Gold is an emerging gold mining with two producing assets-the Orosi and El Limon mines in Nicaragua, a past producer-the Bellavista mine in Costa Rica and explorations properties in Nicaragua, Columbia and Russia," he wrote. "Development enhancements are anticipated through exploration and resource growth in Nicaragua complimented by exploration activity in Columbia and Russia."

Thompson's second top pick is Bear Creek Mining, which he rated Sector Outperform with a target of $5.40 per share.

Bear Creek is developing two key projects, the Corani silver-lead-zinc project and the Santa Ana silver project, both located in Peru. "By advancing two significant silver-lead-zinc projects through to final feasibility, Bear Creek offers leverage to the silver, lead and zinc price," Thompson wrote.

"BCM has two top ten silver mines in the making, with lead and zinc credits and long life resources bases valued at US$0.24/ Eq Ag resource oz. Recent M&A activity highlights potential for further gains on the back of economic refinements and drilling at Corani + Santa Ana."