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Methanex downgraded after plant shutdown in Egypt

Civil unrest in Egypt is clouding the outlook for Vancouver-based Methanex Corp. , the world's largest maker of methanol that counts on the country for a good chunk of its production.

On Monday, the company announced it temporarily shut down its 1.3-million-tonne-per-year methanol plant in Damietta, Egypt, following recent skirmishes that have affected various industries in the area. Media reports suggest protests began over the weekend in response to Agrium's decision to build two new fertilizer plants, later escalating into violent clashes with army units. Several deaths were reported.

"While none of this anger has reportedly been steered at Methanex, and the unrest appears unrelated to the popular uprising earlier this year, management felt the unrest threatened employee safety, prompting the temporary shutdown," commented Raymond James Ltd. analyst Steve Hansen in a research note today.

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Mr. Hansen notes that Egypt accounts for about 18 per cent of the company's production and roughly a quarter of its earnings. He calls the suspended plant Methanex's "crown jewel," thanks to its low costs and enviable gas contracts and geography.

The lost production will "undoubtedly" impact fourth-quarter results, he said. "The challenge, however, is predicting the duration—possibly days, possibly weeks."

For now, he's taking a cautious approach, downgrading Methanex to "outperform" from "strong buy."

But he remains upbeat on the industry overall: "We continue to believe that after several years of large capacity additions, very little new low-cost supply is expected over the next five years. Underlying demand, meanwhile, is expected to remain healthy," Mr. Hansen said.

Upside: Raymond James maintained a $35 (U.S.) six- to 12-month price target.

GLG Life Tech Corp. reported third-quarter revenues of $1.7-million, below consensus forecasts of $7.7-million, as the low-calorie food and beverage maker announced an end to exclusivity terms in its supply agreement with Cargill. "Given CLG's disappointing financial results and its poor business visibility, further worsened, in our view, by the loss of its exclusivity sales provision with Cargill, we believe that an investment in GLG at the current stage remains a highly speculative endeavour," said Desjardins Securities Inc. analyst Pooya Hemami.

Downside: Ms. Hemami downgraded GLG to a "sell" from "hold" and cut her price target to $1.45 from $2.70.

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Raymond James Ltd's Andrew Bradford upgraded Essential Energy Services Ltd. to "strong buy" from "outperform" after the provider of well production services reported third-quarter earnings before interest, taxes, depreciation and amortization 40 per cent above the consensus estimate. "By far, the lion's share of the surprise is attributable to Essential's Tryton Tool Services subsidiary," he noted.

Upside: Mr. Bradford raised his price target by 60 cents to $3.10.

Paladin Energy Ltd.'s latest quarterly earnings were a bit weaker than expected, but CIBC World Markets Inc. analyst Ian Parkinson notes the stock is "steeply discounted," trading at 0.61 times net asset value when producing peers are at 0.96 times. "There is room for this stock to rerate. However, operational performance and meeting guidance must be delivered over the next several quarters to get this rerating," he said.

Upside: Mr. Parkinson continues to rate Paladin as a "sector outperformer" and trimmed his price target by 50 cents to $4.50.

Related:Valeant and Paladin: Seeking a prescription for growth

Canaccord Genuity analyst Nicholas Campbell expects SilverCrest Mines Inc. to announce in December an initial silver resource in excess of 50 million ounces at its La Joya project in Mexico. He is basing that prediction on recent exploratory drilling and sees the deposit having the potential to ultimately develop into a 100-million-ounce-plus silver project.

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Upside: Mr. Campbell raised his price target to $3.75 from $3.15 and maintained a "speculative buy" rating.

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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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