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Canaccord sees higher price coming for Equinox

Equinox Minerals Ltd. continues to trade above China Minmetals Resources Ltd.'s $7-per-share takeover offer, as investors bet the $6.3-billion in cash put on the table won't be enough.

Canaccord Genuity analyst Gary Lampard believes that's pretty wise thinking. He doesn't advise betting that another rival bid will emerge for Equinox. But he does see good reason to believe the Chinese will have to pay more to convince shareholders to go along with the offer.

China's deep pockets, low cost of capital, and hunger for commodities to feed its surging industrial growth will probably mean it won't have a big problem outbidding Western companies in any bidding war, analysts have stated.

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Mr. Lampard also notes a precedent set in 2009 in China Minmetals' acquisition of assets from Australian miner OZ Minerals. To be successful, it had to offer a 14 per cent sweetener (as well as exclude assets from an initial $2.6-billion (Australian) takeover offer for the company because of national security concerns).

"Given the strategic value to China of resources acquisitions, we do not expect to see a rival bid for Equinox. However, we do see the case for a higher offer price," he said.

Upside: Mr. Lampard raised his target price to $8 from $6.75, although he downgraded the stock to a "speculative buy" from a "buy."

The rise in his target price comes despite lowering his expectations for the price of copper . In 2011, he now sees an average price of $4.42 (U.S.) per pound, falling to an average of $4.38 in 2012. That cuts his 2011 earnings before interest, taxes, depreciation and amortization estimate to $921-million from $1.042-billion, and his 2012 estimate to $1.125-billion from $1.274-billion.

Shares in Fortress Paper Ltd. have been "overly punished" after a recent lawsuit was launched against the company by competing pulp producer Sateri and the industry announced a number of global dissolving-pulp capacity expansions, said Raymond James Ltd. analyst Daryl Swetlishoff. He believes the lawsuit is "frivolous" and notes the expansions will have long lead times. "Now down 35 per cent from mid-February highs, we believe the market has overreacted and regard this weakness as a compelling opportunity to further add to positions," he said.

Upside: Mr. Swetlishoff rates the stock as a "strong buy" with a $75 target price.

Forzani Group Ltd.'s fourth-quarter earnings may have missed Street estimates, but its same-store sales growth of 7.4 per cent year-over-year was well ahead of any of its peers, noted CIBC World Markets Inc. analyst Mark Petrie. "Forzani continues to lead the way among mature retailers in Canada," said Mr. Petrie, who expects management's efforts to improve sales at Sport Chek will continue to gain traction in fiscal 2012.

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Upside: He raised his price target by $1 to $21.

Related: Forzani: Smaller is better

Related: Forzani fourth-quarter earnings below Street forecasts

Exactech Inc. , a manufacturer of orthopedic implant devices, is "well positioned to benefit from the combination of improving procedure volumes and product flow," said Canaccord Genuity analyst William Plovanic. He notes Exactech has a low valuation relative to its peers, and investors in competitor Wright Medical Group Inc. may be looking to put money elsewhere in the sector after its CEO resigned over compliance issues.

Upside: Mr. Plovanic raised his price target by $3.50 to $30.

Alamos Gold Inc. now anticipates full-year production to be near the low end of its guidance of 160,000 to 175,000 ounces, as it deals with throughput issues at its Mulatos mine in Mexico. But UBS analyst Dan Rollins believes the company has "left itself little wiggle room" to meet that guidance, as he revised his output forecast to 158,000 ounces.

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Downside: Mr. Rollins cut his price target by $1 to $20.

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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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