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Cameco hit with downgrade as hopes for uranium rebound fade

Cameco's Cigar Lake mine manager Rick Forbes walks down one of the mine shafts at the Cigar Lake mine site September 3, 2010. The mine has been dewatered since February 2010 after being flooded in 2006 and 2008. REUTERS/David Stobbe

© David Stobbe / Reuters/Reuters

Market Blog's roundup of some of today's key analyst actions

The rebound in the uranium market some speculated would surely follow the big-time drubbing the sector experienced in the aftermath of the Japanese Fukushima nuclear disaster isn't exactly materializing.

In fact, spot uranium pries are now at the lowest level since September, 2010, according to the price-tracking service Ux Consulting. That's well before the March, 2011, tsunami in Japan that prompted a global rethink of nuclear energy and ushered in a crisis of confidence in the uranium industry.

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TD Securities has taken note, and today downgraded Cameco Corp. to a "hold" from a "buy." Analyst Greg Barnes also slashed his price target on the stock by $6 to $24.

Cameco shares have responded, falling nearly 5 per cent.

"The next 12 months are likely to be a continuation of the moribund market that has dogged uranium for the past 18 months," he concluded.

"While we believe that, over the long term, nuclear power should remain an integral part of the world's electricity generating capacity and that nuclear capacity should continue to expand modestly (driven by reactor additions in Asia), the medium-term outlook is unclear, with the timing of Japanese reactor restarts in question and the government announcing its decision to phase out nuclear power by the 2030s," Mr. Barnes said in a research note.

It's looking increasingly unlikely, he added, that any additional Japanese reactors could resume operation over the next six to nine months. There had been expectations that six to seven reactors could be brought back online before the end of 2012.

"We expect this to have a dampening effect on market expectations for spot uranium prices until there is more clarity on when restarts could resume," he said.

The continued weakness in both spot and term uranium prices resulted in TD pulling back its price forecasts for the commodity for the next several years. It now expects an average price of $51 (U.S.) per pound in 2012, instead of $54; $55 in 2013, down from an earlier forecast of $68; and $65 and in 2014, down from $75.

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Canaccord Genuity analyst Michael Graham thinks Google Inc. shares are heading for more record highs. Better cost-per-click trends are creating "an upward bias" to revenue estimates in future periods and market apprehension over the recent Motorola Mobility acquisition continue to dissipate, he said. "We believe Google stock can continue its recent momentum," he said.

Upside: Mr. Graham raised his price target by $150 (U.S.) to $850 and maintained a "buy" rating. The median analyst estimate is $750, according to Thomson First Call.

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Foraco International SA has agreed to acquire Australian niche high-tech driller John Nitschke Drillling for about $60-million. Canaccord Genuity analyst Yuri Lynk generally likes the deal, given that it will provide Foraco with new technology and stronger relationships in Australia. But he notes that John Nitschke has 50 per cent exposure to the iron ore industry, which is one of the weakest markets at the moment.

Upside: Mr. Lynk reiterated a "buy" rating and trimmed his price target by 25 cents to $4.50.

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Oceanic Iron Ore Corp. has released a prefeasibility study on its Hopes Advance iron project in northern Quebec that raised capital and operating cost estimates by about 20 per cent from a preliminary economic assessment last year, noted Canaccord Genuity analyst Gary Lampard. Production could start in 2016 and continue for 31 years, based on new reserve estimates.

Downside: Mr. Lampard slashed his price target by 40 cents to 50 cents but maintained a "speculative buy" rating.

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After a year-long slide, minor metals seem to have found their mojo, said National Bank Financial analyst Rupert Merer, as prices for most have been rising and market sentiment has improved. "With this, we believe that 5N Plus Inc. can avoid writedowns for the third quarter and that the tangible book value of the company, at $2.04 a share, is a reasonable floor for the stock," he added.

Upside: Mr. Merer reiterated an "outperform" rating on the specialty metal producer and a $4 price target.

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While Agrium Inc. may see declining earnings in its wholesale segment, its retail business should grow and meet its stated goal of $1.1-billion in EBITDA by 2015, said Dundee Securities analyst Carolyn Dennis. She initiated coverage with a "buy, medium risk" rating, commenting that Agrium should continue to generate free cash flow and "create value through investment, share buybacks and dividend increases."

Upside: Ms. Dennis set a 12-month price target of $118 (Canadian).

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at #eyeonequities

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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