Merrill hikes targets =>2006 Cu = US$2.00Merrill hikes targets
ROMA LUCIW
Globe and Mail Update
Soaring demand from investment funds has led analysts at Merrill Lynch & Co. to raise their forecasts for base metal prices, a bullish view that translated into higher price targets for Canadian nickel producer Inco Ltd. and gold producer Agnico-Eagle Mines Ltd.
“Traded metal prices have surged over the last two months, in our view principally driven by extensive investment fund buying,” Merrill Lynch said in a note, adding that the supply and demand equation continues to suggest prices will remain strong.
Although inventories of copper, nickel, lead and aluminum have increased in recent months, Merrill said “it is obvious that our metal price assumptions were too low and we have reassessed fundamentals in all commodities.”
The firm hiked its copper price forecast by 21 per cent to an average of $2 (U.S.) a pound in 2006 and by 21 per cent to $1.75 a pound next year; its zinc forecast by 54 per cent to $1 a pound this year and by 72 per cent to $1 a pound in 2007; its aluminum forecast by 5 per cent to $1.05 a pound this year; and its nickel forecast by 7 per cent to $6.60 a pound in 2006 and 15 per cent to $6.35 a pound in 2007.
Merrill left its gold and silver price expectations unchanged.
The changes prompted Merrill analyst Daniel Roling to raise his Inco price target to $57 (U.S.) from $50 a share Wednesday. The analyst, who has a “buy” recommendation on Inco, said he expects strong earnings growth and cash flow, based on healthy nickel prices.
Assuming that the Voisey's Bay nickel and copper mine in Labrador and that the Goro nickel mine in New Caledonia are in full production, he said Inco will generate more cash flow than it will need for capital spending over the next three years, money that could be used for “further shareholder friendly initiatives and/or additional growth.”
Mr. Roling left his 2006 earnings estimate unchanged, saying the impact of climbing nickel and copper prices will be offset by higher raw materials and other operating costs. But he hiked his 2007 and 2008 per share Inco earnings expectations, citing the increasing production from Voisey's Bay and Goro.
Shares of Toronto-based Inco climbed $1.13 (Canadian) or 2.05 per cent to $56.19 on the Toronto Stock Exchange while Inco stock traded in New York added $1.10 (U.S.) or 2.28 per cent to $49.42.
Merrill analyst Michael Jalonen raised his price target on Agnico Eagle by $3 to $32 (U.S.) a share Wednesday, citing the higher metals targets. Agnico Eagle of Toronto produces gold, silver, zinc and copper.
The higher copper and zinc price forecasts, offset by rising exploration and administration spending, led Mr. Jal to raise his 2006 per share earnings forecast to 56 cents a share from 54 cents.
Furthermore, the company “is working on four new gold projects that should convert it into a multi-mine operator within two years,” he said. He has a “buy” on the stock.
Shares of Agnico Eagle rose 69 cents (Canadian) or 2.38 per cent to $29.72 in Toronto and 58 cents (U.S.) or 2.26 per cent to $26.22 in New York.
Teck Cominco Ltd. stock climbed $1.85 (Canadian) or 2.6 per cent to $72.90 in Toronto after Mr. Jalonen said the new metals price forecast led him to raise his 2006 per share target to $7.23 a share from $5.54 a share.
The Vancouver-based company has been reporting record profits fuelled by soaring prices for zinc and other metals.