Credit Suisse downgraded Taseko Mines Limited (TKO.TO) to
Underperform from Neutral and lowered its target price to $5.50
"The Canadian federal government announced that the Prosperity
project "cannot be granted federal authorizationsto proceed due to
concerns about the significant adverse environmental effects of the
project." Prosperity represented 57% of our NAV for Taseko, and
thus a rejection from the federal government represents a
significant blow to Taseko's growth prospects and its market
value," Credit Suisse said.
"Canadian Environment minister Jim Prentice stated that "the
significant adverse environmental effects of the Prosperity project
cannot be justified as it is currently proposed". We highlight "as
it is currently proposed", since this leaves some opportunity for
Taseko to redesign the project, although we expect such a redesign
could take years to complete, new engineering plans may need to be
created, and new permits and approvals could be required. In
addition, a redesign may not remove the objections to the project
raised, and recently strongly voiced, by some Aboriginal groups
opposed to the project."
Valuation: "We view the prospects of Prosperity getting built to
now be slim, and therefore include only 20% of Prosperity's value
in our NAV, and have assumed a 2017 start date to allow for
redesign/re-permitting. This has lowered our NAV to $5.97 per share
(previously C$9.80), and our target price to C$5.50 (previously
$8.25). Completely removing Prosperity would lower our NAVPS to
$4.88, and our target price to $4.75. Based on our target price
being below the current share price, we are lowering our rating to
Underperform from Neutral.
Our 2012 EPS estimate is raised to $0.62 from $0.61."
"Catalysts? We expect Taseko will appeal the government's
decision, and the Provincial government may also get involved, as
it had previously approved the project. Taseko believes that a
resolution with the federal government is attainable, although it
will take time.
"M&A the next focus? We believe TKO may now look to use its
strong balance sheet (est. $190M in cash and no debt) to reacquire
growth through M&A."