Allied Nevada Gold Corp. (
TSX: T.ANV,
Stock Forum) shares tumbled 5.5% to $3.77 Wednesday after Scotia Capital lowered its rating and target price for the stock.
Scotia said investors could see further erosion (in the value of the shares) as a result of financings under current market conditions.
“Therefore, we see the potential for the shares to continue to lag behind the peer group and we rate the company Sector Underperform,’’ wrote Scotia analyst Trevor Turnbull in a research report.
His new one-year target is $2.50, down from $4.
At current trading levels, Allied Nevada has a market cap of $394.2 million, based on 104.1 million shares outstanding. The 52-week range is $11.25 and $3.20, meaning that Allied Nevada has been an extremely poor investment for people who bought in at higher levels.
The ratings downgrade comes just days after Allied Nevada announced results of a prefeasibility study for a planned expansion of the mill at its Hycroft gold mine in Winnemucca, Nevada.
“We estimate the Hycroft heap leach and mill project would be worth $951 million if it could be financed on a non-dilutive basis,’’ Turnbull wrote.
“Unfortunately, fundraising scenarios for the $1.3 billion project such as selling a silver stream or royalty, raising more high-interest debt, or bringing on a joint venture partner, and issuing equity appear significantly dilutive to our valuation at current bullion prices.’’
Turnbull said he expects Allied Nevada to continue to underperform its mid-tier peers until bullion prices materially improve.
“In our opinion, gold and silver prices are not high enough for Allied Nevada to achieve the desired results from selling a stream, royalty or stake in the Hycroft project. It seems obvious that the company will need to rely on several different sources to secure enough capital to complete its sulphide mill project.’’
Turnbull went on to say that the situation is “very complex, given that some financing options such as selling a silver stream or royalty would lower the value of the project and reduce its attractiveness to others that may want to purchase a joint venture stake.
“Similarly, a stream or royalty could reduce further borrowing capacity.”