Excerpt from Morningstar Equity Analyst ReportI thought this excerpt from Morningstar's latest report would be of interest. They provide dispassionate advice, and are taking a positive medium term view of this stock - GLTA.
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Analyst Note Joe Gemino, Analyst, 03 April 2017
We are adding 4-star stock Cenovus Energy to our Best Ideas list and raising our fair value estimate to $18 (CAD 23) from $14 (CAD 18). The company appears to have found a solution to the oil sands industry problem: high production costs and extensive capital requirements. Based on our analysis, solvent-aided process, or SAP, has the potential to eventually be the lowest-cost oil sands production, with most potential production having break-even prices around $45 per barrel of West Texas Intermediate. Even though commercial implementation is not expected for a few more years, incremental production from SAP technology will meaningfully drive value for the company in the long term. In the interim, we expect the company to drive additional value for its shareholders with its low-cost Palliser Block conventional production.
Furthermore, we believe that the market is vastly underestimating the recent FCCL acquisition. The market reacted negatively to news of the deal, and shares fell approximately 13%. However, we think that market is underestimating the potential production that can be brought on line using SAP technology. As such, we believe that the acquisition provides the company with ample resources to showcase its cost-cutting technology. Trading at a 35% discount to our fair value estimate, we believe that the stock presents an attractive opportunity for long-term investors.
Furthermore, we are assigning the company a positive moat trend. We believe that Cenovus will develop a future cost advantage through the implementation of its SAP technology on its future bitumen growth projects. With project break-evens among the lowest in the oil sands industry, Cenovus’ future cost structure is expected to compare favorably with peers. By adding 330,000 barrels per day of incremental bitumen production, the low-cost structure associated with SAP will significantly lower the corporate cost structure and bolster the company's return profile.