Inside the Market’s roundup of some of today’s key analyst actions
ATB Capital Markets’ Chris Murray thinks Air Canada’s (AC-T) Monday morning announcement that it is preparing to wind down operations ahead of an “increasingly likely” strike or lockout is “part of the negotiating and bargaining process, with a slightly more negative tone on reaching a negotiated settlement, which may weigh on near-term demand and yields but should have little long-term impact on share prices.”
The equity analyst warned investors should expect the “rhetoric” to amp up as the airline and its pilots union approach a legal strike or lockout position on Wednesday, Sept. 18.
“While the parties have been negotiating for several months and have reached agreements on several items, wages, particularly wages for pilots with low seniority, are a key sticking point,” he said in a note titled Expect Choppy Skies Until Pilot Resolution. “Media reports have suggested that the Company has made a 30-per-cent wage increase offer, with 20 per cent retroactive and the balance over a new three-year contract with some enhancements for low-seniority staff.
“We believe the ultimate range of outcomes will likely be in this range given other pilot contracts completed by WestJet and some U.S. unions, which saw 24-per-cent to low-40-per-cent increases. The Company continues to see itself as offering the best pay package for pilots in Canada, which increases of this magnitude would accomplish. [Monday’s] press release and commentary from ALPA [Air Line Pilots Association] should be expected as both parties look to optimize their positions, particularly with Government intervention possible. "
Mr. Murray’s estimates a strike would cost Air Canada almost $10-million per day, which he thinks “would essentially seize air travel (and the economy in short course), likely bringing about a government response given the essential nature of air travel in Canada, both domestically and internationally.”
“While regional operations can cover 20 per cent of domestic operations, there is insufficient external capacity to replace Air Canada,” he added. Also, while pilot wages at Air Canada may have fallen behind the curve of other competitors, there are limits to cost increases that the Company can bear, and we are also skeptical of any mass pilot move to the U.S., given the challenges in that market amongst commercial and cargo carriers, which has loosened pilot supply.”
Maintaining his “outperform” recommendation for its shares, he cut his 12-month target to $26.50 from $27 to reflect revised estimates and a “modestly” higher multiple reflecting peer valuations. The average target on the Street is $22.07, according to LSEG data.
“We believe negotiations should continue but see the probability of a short strike increasing,” he said. “The Company indicated that it had offered arbitration as a solution and stated that it would look to the Federal government to intervene should a strike or lockout happen, similar to the recent WestJet (Private, not rated) and rail cases.”
“As part of reviewing our expectations surrounding any disruption, we have updated our estimates to allow for a more pronounced impact around Q3 results, which could see traffic loss, yield compression above prior expectations.”
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With the spinoff of its Liquids Pipelines business into a new entity nearing completion ahead of its debut on the TSX on Oct. 2, ATB Capital Markets analyst Nate Heywood sees improved cost of capital expectations for TC Energy Corp.’s (TRP-T) business going forward and expressed “increasing optimism” that further rate cuts will “modestly” improve the cost of its debt.
On Monday, the Calgary-based company provided an update for South Bow Corp., announcing the setting of the distribution record date of Sept. 25. The spinoff has received the requisite tax rulings on both sides of the border as well as shareholder and court approvals. Shareholders will retain their interest in TC Energy and receive a stake in South Bow.
“The business is now essentially separated from TC Energy on an operational basis, with full shareholder approval and requisite tax rulings in hand,” said Mr. Heywood. “SOBO leadership highlighted the strategic positioning of its portfolio, provided a constructive market outlook and framed the capital allocation priorities for the next four years. The Company’s key assets in Keystone and intra-Alberta pipelines provides a cash flow stream backed by 88-per-cent contracted EBITDA and 96 per cent of revenue underpinned by IG customers, with minimal commodity price exposure, connecting the high growth production in the oil sands to the top refining markets in the US. Capital allocation will initially focus on reducing leverage below the initial 5.0 times profile by 0.25-0.5 times within three years, while still allocating $500-million toward discretionary growth projects, including the Blackrod Connection, to capture its 2-3-per-cent EBITDA CAGR [compound annual growth rate] target. Management views buybacks as a strategic lever to utilize opportunistically and will evaluate dividend growth once the payout ratio is less than 100 per cent of earnings in future years.”
Reiterating his “sector perform” recommendation for TC Energy shares, Mr. Heywood bumped his target to $60 from $56. The average target on the Street is $59.63.
“TC Energy provides a utility-like cash flow predictability across its portfolio of assets in North America,” he said. “The Company is structurally supportive of the energy transition through its established and growing Natural Gas Pipelines and Power & Energy Solutions segments. Following a period of significant development and major projects, TRP is entering an execution phase and is expected to remain disciplined through achievement and maintenance of a more conservative leverage profile (4.75 times debt to EBITDA) and modest annual capital spending to support its 7-per-cent CAGR [compound annual growth rate] target on EBITDA through 2026, post spinoff. TRP has made deleveraging a key point of focus for the near-term and is targeting leverage below 4.75 times by year-end 2024 (YE2023: 5.1 times), and management expects $3-billion in near term asset recycling to be a major piece of the leverage improvement (85-per-cent announced). The secured capital program remains robust at an aggregate $31-billion (low end of $8.0-$8.5-billion capital spending for 2024); however, management has messaged a more conservative annual spend of $6-$7-billion going forward to help maintain its leverage position. The dividend remains an attractive consideration for TRP with 24 consecutive increases and a current 6.4-per-cent yield (2024e payout ratio: 52 per cent). TRP currently trades at a 2024 estimated EV/EBITDA multiple of 11.1 times, which compares to peers trading near 10-11 times.”
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“Macro realities” have recently caught up with copper prices, according to RBC Dominion Securities analyst Sam Crittenden.
“After reaching record levels in May, the air has come out of the copper price as a sluggish global economy continues to weigh on demand,” he said. “We think the price can find a floor near current levels as the Chinese government takes additional steps to provide economic support, we move past a seasonally slow period, and rate-cuts elsewhere provide a tailwind for global manufacturing and construction activity.”
In a research report released Tuesday, Mr. Crittenden trimmed his 2024 copper price estimate to US$4.17 per pound from US$4.37 per pound. He maintained his forecasts of US$4.50 for 2025, US$5.00 for 2026-2028, and US$4.00 long term from 2029.
“We have seen tentative signs of the physical market returning to more normal conditions following what feels like a period of de-stocking; however, we are also starting to see a fresh batch of doom and gloom articles about China and it remains a key risk if the economy there continues to struggle,” he said. “A ‘harder’ landing in the US and elsewhere could also send copper lower toward marginal cost, which we see in the $2.75-3.00/lb level; however, our base case remains the global economy and China can improve into next year, and we forecast modest demand growth this year and next of roughly 3 per cent which is inline with recent trends. We also see additional supply coming online from ongoing ramp ups including QB, Mantoverde, and Kamoa-Kakula which can keep the market relatively close to balanced for the next 12 months. Beyond 2025, there isn’t much new supply that has been sanctioned and we forecast growing deficits from 2026 onwards which could lead to a period of substantially higher prices.”
Despite the near-term uncertainty, Mr. Crittenden emphasized a “positive multi-year story remains intact.”
“We believe the energy transition including renewable energy, EVs and the associated grid improvements can drive strong demand for copper while the data center build out could also add a new layer of demand (the significance of which depends on the copper content assumption),” he said. “This growing demand is set against an aging supply base without much new supply committed to come online post 2025, and it’s getting harder to build new mines due to rising costs and social issues. For this reason, we believe a period of higher prices is needed to spur investment in new copper mines and we maintain our estimate for 2026-2028 of $5.00/lb. This price could be conservative if demand accelerates, and the mining industry struggles to build new supply due to growing challenges around declining grades and more remote and challenging jurisdictions.”
Seeing copper equity valuations “screening attractively near historical averages,” Mr. Crittenden made a series of target price adjustments to reflect his price deck changes:
* Capstone Copper Corp. (CS-T, “outperform”) to $12 from $14. Average: $13.50.
Analyst: “[Capstone] stands on the verge of a FCF and production inflection point as it ramps up the Mantoverde mine in Chile which could drive higher production with lower costs.”
* Filo Corp. (FIL-T, “sector perform”) to $33 from $34. Average: $32.80.
Analyst: “We adjust our Filo PT in line with the acquisition proposal from Lundin and BHP.”
* First Quantum Minerals Ltd. (FM-T, “outperform”) to $22 from $25. Average: $20.42.
Analyst: “[First Quantum] is clouded by uncertainty around the fate of Cobre Panama; however, we believe the company has the balance sheet flexibility to work through the situation with the new government, while selling a minority stake in the Zambian operations could be a positive catalyst.”
* Hudbay Minerals Inc. (HBM-T, “outperform”) to $16 from $18. Average: $15.95.
Analyst: “[Hudbay] can continue to generate strong FCF, while obtaining the final permit for Copper World could be a catalyst later this year.”
* Ivanhoe Mines Ltd. (IVN-T, “outperform”) to $24 from $25. Average: $24.53.
Analyst: “Kamoa-Kakula is evolving into one of the world’s largest copper mines with first quartile cash costs, and we expect production to grow by 50 per cent in 2025 when Phase 3 and the smelter has fully ramped up.”
* Lundin Mining Corp. (LUN-T, “sector perform”) to $16 from $20. Average: $17.59.
Analyst: “The Vicuna district has potential to become one of the world’s leading copper districts; however, it remains several years away from production.”
* Teck Resources Ltd. (TECK.B-T, “outperform”) to $85 from $88. Average: $73.72.
Analyst: “We believe a successful ramp up of the QB mine in Chile and the $2.75-billion share buyback can drive outperformance over the next 12 months.”
Mr. Crittenden concluded: “Our best copper equity ideas are: Capstone, Ivanhoe, Teck Resources, and Hudbay.”
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Precious metals analysts at RBC Dominion Securities are forecasting “exceptionally strong” results for gold equities in the second half of 2024.
“In 2Q, gold producers reported seasonally weak operating results but a sharp improvement in financial results due to higher gold prices. In 2H, we forecast a sharp improvement in operating results which, alongside elevated gold prices, could match record FCF for the sector realized in 2H20,” they said. “Commentary by operators continues to emphasize a measured approach to discretionary spending and a focus on cost containment, in our view critical for gold equities to continue to participate in price upside. At RBC revised pricing, we forecast large-cap gold producers trade at 2024/25 FCF/EV yield of 4.7 per cent/7.6 per cent and EV/EBITDA of 6.4 times/5.2 times.”
In a research report released Tuesday, RBC “modestly” raised its gold price forecast for the remainder of the day while hiking its long-term project by 10 per cent to US$2,200 per ound (from US$2,000), “influenced by rising breakeven costs of mine production as well as gold price model updates.”
“We increase our gold forecast in 2024 to $2,343/oz (up 2 per cent) and 2025 to $2,655/oz (up 1 per cent) in conjunction with RBC Elements,” the analys said. “RBC Mining Equities’ gold price forecasts are slightly below spot near-term, where we view current rate cut expectations and US election uncertainty as risks. Potential weakness in gold equities is viewed as a buying opportunity ahead of a major 2H24 improvement in financial results. Our preferred gold equities include Adriatic Metals, Agnico Eagle, De Grey, G Mining, Hochschild Mining, New Gold, Osisko Gold Royalties, Royal Gold, Torex Gold.”
They added: “Investment demand is growing, but some price risks are present near-term. Gold prices have continued to reach new record high prices more than $2,500 per ounce, supported by strengthening investment demand on shifts in monetary policy expectations, a key component of our bullish view. Since our prior May outlook, consensus rate cut expectations have sharply increased, now slightly exceeding our gold price model inputs. Our gold price forecasts are slightly lower in 3Q vs. spot, and we view some downside risk near-term in light of consensus rate forecasts, plus US election uncertainty in November. We would view upcoming potential gold price downside risk as a buying opportunity.”
The analysts made a series of target price adjustments to stocks in their coverage universe to align with the price deck changes. Their moves included:
- Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$87 from US$80. The average on the Street is US$83.97.
- Alamos Gold Inc. (AGI-N/AGI-T, “outperform”) to US$23 from US$20. Average: $28.84 (Canadian).
- Artemis Gold Inc. (ARTG-X, “outperform”) to $16 from $14. Average: $15.78.
- Barrick Gold Corp. (GOLD-N/ABX-T, “outperform”) to US$22 from US$21. Average: US$23.19.
- B2Gold Corp. (BTG-N/BTO-T, “sector perform”) to US$3.75 from US$3.50. Average: US$4.15.
- Dundee Precious Metals Inc. (DPM-T, “outperform”) to $17 from $16. Average: $16.
- Eldorado Gold Corp. (EGO-N/ELD-T, “outperform”) to US$22 from US$20. Average: $27.60 (Canadian).
- Equinox Gold Corp. (EQX-T, “sector perform”) to $11 from $10. Average: $10.27.
- Gatos Silver Inc. (GATO-N/GATO-T, “sector perform”) to US$13 from US$11. Average: US$13.50.
- G Mining Ventures Corp. (GMIN-T, “outperform”) to $17 from $16. Average: $15.12.
- New Gold Inc. (NGD-N/NGD-T, “outperform”) to US$3.50 from US$3. Average: US$2.72.
- Oceanagold Corp. (OGC-T, “outperform”) to $5.50 from $5. Average: $5.03.
- Osisko Development Corp. (ODV-X, “outperform”) to $5 from $6. Average: $6.82.
- Osisko Gold Royalties Ltd. (OR-N/OR-T “outperform”) to US$20 from US$21. Average: US$18.95.
- Pan American Silver Corp. (PAAS-N/PAAS-T, “outperform”) to US$27 from US$25. Average: US$27.25.
- Sandstorm Gold Ltd. (SAND-N/SSL-T, “outperform”) to US$6 from US$6.50. Average: $24.53.
- Skeena Resources Ltd. (SKE-T, “outperform”) to $17 from $15. Average: $16.47.
- Torex Gold Resources Inc. (TXG-T, “outperform”) to $34 from $32. Average: $31.33.
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Citing near-term uncertainty surrounding Ascot Resources Ltd. (AOT-T) after last week’s announcement it is suspending operations at its Premier gold mine to allow development time, Raymond James analyst Craig Stanley downgraded its shares to “market perform” from “outperform” previously.
“The timing of the announcement is surprising as on July 25 the company closed a $34-million equity financing, yet just six weeks later management says development at the Big Missouri mine has fallen behind schedule by one to two months and further development is required at the Premier Mine to access deeper ore,” he said.
“We believe the best option is the sale of the company. PGP is a potentially strategic asset as it is one of three mills in the Golden Triangle, and is the closest to tidewater, offering consolidation and/or toll milling potential in the region. Note that the company has not made any comments regarding a potential sale. We also note one Canadian gold developer has already been acquired this year (Marathon) and another acquisition could close next month (Osisko Mining, link). ... Recall Peruvian miner Ccori Apu is Ascot’s largest shareholder at 17 per cent and we believe could look to diversify its country exposure given security incidents at its Poderosa Mine (see here, here, and here), although, again, there have been no public statements by either company regarding this.”
Mr. Stanley dropped his target to 15 cents from $1. The average is $1.12.
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Desjardins Securities analyst Frederic Tremblay said recent institutional marketing meetings with executives from 5N Plus Inc. (VNP-T) were “positive” and suggested its specialty semiconductors business is “well-positioned to remain on an upward trajectory.”
“The long-standing business relationship between VNP and its largest customer (First Solar) was one of the main topics during the meetings,” he said. “As a western-based partner which represents a small percentage of First Solar’s total manufacturing cost, VNP continues to be rewarded with contracted volume increases and more favourable prices. Management’s view is that First Solar’s outlook is bright regardless of the result of the U.S. election as the levers expected to be pulled by Democrats (IRA) and Republicans (tariffs) should be positive.”
“VNP’s acquisition of AZUR has been a major success, as demonstrated by management highlighting the potential for AZUR to double revenue and triple profitability in 2025 vs 2021 levels. Demand keeps growing and supply/competition remains rational. Capacity is fully sold for 2024 and 2025, and some orders are already in the books for 2026 and 2027.”
Mr. Tremblay came away from the discussions with CEO Gervais Jacques and CFO Richard Perron touting the “deep pipeline of opportunities” for the Montreal-based company.
“VNP has several mid-term opportunities worth monitoring: (1) deployment of RayGen’s energy storage solutions; (2) medical imaging market; (3) evaluation of options for GaN-on-Si patent portfolio; and (4) potential M&A,” he said.
Reiterating a “positive stance” and a “buy” recommendation for its shares, Mr. Tremblay increased his target to $8.50 from $7.25. The average is $8.25.
“While VNP’s valuation multiple has expanded in recent months, the stock still trades at a discount to peers,” he noted.
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In other analyst actions:
* In response to its acquisition of Amsterdam-based OCI Global’s international methanol business in a US$2.05-billion deal, Barclays’ Michael Leithead downgraded Methanex Corp. (MEOH-Q, MX-T) to “equal-weight” from “overweight” and dropped his target to US$44 from US$56, while Piper Sandler’s Charles Neivert increased his target to US$68 from US$51 with an “overweight” recommendation. The average on the Street is US$57.45.
“Transaction with high strategic rationale; fair (but full) price for low-cost assets. Expect some share weakness on capital allocation / leverage pivot and equity offering,” said Mr. Leithead.
* Jefferies’ Matthew Murphy upgraded G Mining Ventures Corp. (GMIN-T) to “buy” from “hold” with a $13 target, rising from $10 but below the $15.12 average on the Street.
* DA Davidson’s Brandon Rolle cut his BRP Inc. (DOO-T) target to $96 from $105 with a “buy” rating. The average is $92.94.
“BRP shares have traded lower after beating 2Q25 earnings expectations but cutting FY25guidance for the second consecutive quarter,” said Mr. Rolle. “Although BRP had to cut its FY25 guidance again, we view the guidance revision as prudent given current industry inventory dynamics. While it’s unfortunate BRP will be in an inventory rationalization period for the next 12-18 months, it’s the right near-term strategy for the long-term interests of the company. With FY25 EPS expectations reset, we are maintaining our BUY rating and lowering our PT.”
* Stifel’s Ingrid Rico bumped her Calibre Mining Corp. (CXB-T) target to $3 from $2.50 with a “buy” rating. The average is $3.01.
“Last week, we had the opportunity to attend a site tour that showcased CXB’s Valentine project. A key value driver that will take Calibre to become a 500koz producer. We came away with a better appreciation of the remaining construction activities with development substantially de-risked, and we gained comfort on an achievable Q2 2025 start-up. As we looked ahead to the operational expectations, we focused on the ore control drilling as a layer of reassurance on the reserve block model, and have gained confidence to reduce the discount factor we’ve been applying to the grade profile. Additionally, upside levers to production profile, reserve growth and mine life extensions became more evident in our conversations with the team. We are increasing our target price to $3.00, which reflects an increase to NAVPS, along with an increase to our target P/NAV multiple as de-risking of Valentine continues to drive the re-rate,” said Ms. Rico.
* BMO’s Kevin O’Halloran raised his Torex Gold Resources Inc. (TXG-T) to $30 from $29 with an “outperform” rating. The average is $31.33.
“We attended Torex’s investor day last week, which highlighted positive results from an internal PFS on EPO,” said Mr. O’Halloran. “An inaugural reserve of 781koz AuEq will add ~1.7ktpd, and the deposit sits within the existing permitted area at Morelos. The low $81.5-million capital cost reflects EPO’s proximity to Media Luna, and ability to leverage existing infrastructure. Reserves at Morelos now solidify minimum annual production of 450koz AuEq through 2030 as Torex continues to display its ability to extend mine life, which we expect will continue.”