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Finning may soon feast on miners' cash hoards

Dump trucks in operation at a Glamis Gold mining project in Guatemala.

DANIEL LECLAIR/DANIEL LECLAIR/REUTERS

Canadian mining companies are sitting on record amounts of cash and commodity prices have rebounded to quite respectable levels since the recession. Once a lot of that cash is deployed, it could mean good times for heavy equipment dealers as miners ramp up their drilling plans to extract and search for raw materials.

While spending on mining equipment usually lags metal demand, it may not be a long wait. The industry generally expects global mining capital expenditures to return to peak levels in one to five years.

One company that appears particularly well positioned, according to Desjardins Securities, is Finning International Inc. The company has one of the greatest exposures to the mining sector among heavy equipment dealers, with Finning's new sales to the industry - when including the oil sands - representing 39 per cent of total global sales in the year ended June 30, 2010, said Desjardins analyst Benoit Poirier.

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Finning has also achieved a reduced cost base and is in an improved financial position, with lower debt levels and strong management execution, he said.

"We believe the positive momentum in the stock should continue, and we advise investors to build positions in the name as increasing demand for both mining and non-mining equipment, as well as the company's success in reaching its target margins, should lead to higher earnings per share in the coming years," Mr. Poirier said in a note to clients.

Just this morning, global miner Rio Tinto announced it will nearly triple its capital spending to $11 billion (U.S.) next year from 2010, as it seeks to boost iron ore output by more than 50 per cent over five years.



Upside: Mr. Poirier has a $30 (Canadian) target price on the stock and rates the company as a "buy-average risk."

Related: Caterpillar bets on mining with bid for Bucyrus

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Twin Butte Energy Ltd. has acquired $19-million worth of assets, primarily in the Frog Lake area of Alberta, which will provide the company with six to 12 more months of prospective primary heavy oil drilling locations, said Canaccord Genuity analyst Steve Toth. Twin Butte has increased its 2011 capital budget by $5-million to $55-million as a result of the acquisition and will drill an additional 10 Frog Lake wells next year.

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Upside: Mr. Toth hiked his price target by 20 cents to $2.30 and maintained a "buy" rating.

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Evidence is mounting that the airline sector is poised for profitable flying in the months ahead. Statistics Canada said Friday morning that Canadians spent a record $3.2-billion in the three months ended Sept. 30 travelling outside Canada and the U.S., up 5.2 per cent from a year earlier. Desjardins Securities analyst Martin Landry suggests this is particularly good news for Transat A.T. Inc., given that international travel, not including the U.S., represents almost 70 per cent of its customer base. "We believe that positive numbers will translate into strong results for Transat's fourth quarter," which ends Oct. 31 and will be reported on Dec. 16, he said.

Upside: Mr. Landry has a $20 price target on the stock and rates it as a "buy-above average risk."

Related: Transat shares seen ascending on surprise jump in tourism

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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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