Downgrade TD's - Running out of Options. Jaguar reported Q4/11 results and provided 2012 guidance.
Impact NEGATIVE – The company reported Q4 adj. EPS of -.10, well below our estimate and consensus of - .01. The company had previously reported production results; however, cash costs were well above expectations along with higher depreciation and SG&A, all contributing to the miss.
The company also provided disappointing 2012 guidance of 150,000 - 160,000 oz at cash operating costs of $950 - 1,050/oz below our expectations and representing no improvement over a difficult 2011.
The strategic review process is ongoing; however, with ongoing operational difficulties, a weak outlook, a deteriorating balance sheet and declining valuations in the gold sector, we believe that a legitimate bid is becoming less likely. As a result, we are moving away from our takeover valuation target price. We have also significantly reduced our longer-term production assumptions and increased costs, resulting in a decrease to our NAV to $4.45 from $7.95. In our view the board is doing the right thing in removing the management team, undergoing a sale process, and attempting to turn around the assets; however it could be too late, given the weak balance sheet.
Reflecting the weak outlook, deteriorating balance sheet and less likelihood of a bid in our view, we are downgrading Jaguar to REDUCE from Hold and lowering our target price to $3.00 from $8.00. In our view there are serious risks to Jaguar’s ability to finance its debt in the absence of a bid, which we do not see coming at these levels.