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July 31, 2009
Dear Friend,
We carefully estimated what
Agnico-Eagle's 146 km of first-half drilling in Finland, Mexico and
Nunavut may have found, and estimated an almost 50% cumulative 2009 to
2011 reserve gain. This would bring its nearly $575 EV peroz valuation
back down towards its peers.
We raised our price targets for
International Paper to $21 from $19 and for MeadWestvaco to $15 from $13
because each enjoyed much larger alternative fuel tax credits than
anticipated and minor other benefits.
Notwithstanding, we cut our
investment rating on IP to Neutral from Overweight because of its price
appreciation and indications of adverse price-cost actions in
third-quarter both in containerboard and uncoated free sheets. IP
predicted lower third-quarter containerboard prices and OCC scrap has
risen to $83 per ton, increasing input costs. IP suffered another 19%
volume decline in U.S. uncoated free sheet, which likely signals price
erosions as well. Its shares have rebounded nicely from $4, and we
believe IP would serve itself well to issue equity at these levels
given its levered balance sheet.
We cut MeadWestvaco to Underweight in
that we cannot identify any "road map" for it to reach a $250 mm pretax
income level to earn $1.00 per share in 2010 or 2011. Further, its
mundane consumer niches are subject to top line erosions from higher
taxes in 2010, higher savings rates and rising unemployment. We expect
virtuous cost cuts to offset revenue declines. The MWV is a "bunt
single" opportunity in which we envision a 15% to 20% decline towards
our $15 target offset by the $0.92 per share dividend yield. We do not
envision any collapses or serious setbacks, but we cannot see a path to
significant earnings.
John C. Tumazos
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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