RE: RE: Primero Analyst Update!Re: “rediculous report - arbitrarily reducing valuation assumption from 1.20x NAV prior to NGX merger announcement to 0.60xNAV.”
On May 18, TD Newcrest set a target price of $8 based on 1.2x NAV of the mining assets and 1.0x cash. At that time, the average P/NAV in the peer valuation summary was 1.07with a range from 0.67 (Primero) to 1.41 (New Gold).
On August 30, 2011 they set a lower target price of $6 based on 0.6x NAV of the mining assets and 1.0x cash. At that time, the average P/NAV in the peer valuation summary had dropped to 0.85 with a range from 0.34 (Primero) to 1.32 (New Gold).
In both cases, they said they used the lower end of the P/NAV range for intermediate/junior producers because Primero is a single asset producer and the Silver Wheaton tax overhang.That seems reasonable. TD has been consistent in using a P/NAV for Primero that is about twice the actual P/NAV.
As the August 30 average of 0.85 implies, nearly all comparable producers had a P/NAV <1. As well, TD indicated that the average Senior P/NAV is 1.0x (formerly 1.4x on May18). To continue to value Primero at 1.2x like a senior producer would appear to be unreasonable.
Note that the average P/NAV of peers dropped from 1.07 to 0.85 – a 20% decline in market valuations since May. TD’s drop in target price is 25%. Apart from the extra $25 million for the NGX breakup, nothing has changed with Primero except the market. Given the market change,the drop in target price seems reasonable.