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June 21, 2010
Dear Friend, We visited Agnico-Eagle's Meadowbank mine in Nunavut last Thursday, and for another time we were the only U.S. sell-side analyst there. The operations are starting up fine from the standpoint of gold output, ore grade, metallurgical recovery and schedules. Operating costs, capital costs and mill throughputs are missing expectations thus far, however.
We cut our price target to $70 from $75
per share owing to persistent recovery rate shortfalls at Kittila and higher
level of troublesome organic carbon in the first two underground mining
areas. The reserve extension upsides in Finland to depth are less
meaningful if the metallurgy grows tougher at depth. Further, the departure
of the CFO increases worries about whether the company will achieve its
operating cost budgets. Finally, the stock is up from $56 when we upgraded
it after a disappointing September 30 quarter, and there always is a change
we find another entry point after some future disappointing quarter.
OSB price volatility makes long term analysis
of Louisiana-Pacific uncertain. Yearly OSB pricing has a standard deviation
of $60 per thousand square feet for LPX since 1999.
Each $1 change in OSB prices impacts
estimated long-term earnings by about $0.02 per share, and impacts our price
target by about $0.30 per share. Thus, one $60 per 000 sq ft OSB price
standard deviation equal $18 per share in price target. OSB peaked at $395
per thousand square feet in May, but this does not seem to reflect the
entire market. Random Lengths published $205 on June 18th.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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