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UBS downgrades Inmet as miner faces 'critical juncture'

UBS analyst Matt Murphy downgraded his rating on Inmet Mining Corp. today as the Canadian miner faces the challenges of finding a partner for its Cobre Panama project.

"Inmet's future is at a critical juncture as it seeks a partner for the large and low-grade Cobre Panama project," explains Mr. Murphy. "If successful, a partnership would be a major de-risking event, freeing Inmet to seek diversified growth rather than fully committing to Cobre Panama, a capital intensive project with significant execution risks."

While the company's Cayeli and Pyhasalmi projects, in Turkey and Finland, respectively, have been stable performers, they only have only six years of minelife remaining. Meanwhile, dropping zinc grades at Cayeli could put pressure on cash costs, says Mr. Murphy.

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He notes that if Inmet is able to sell 40 per cent of Cobre Panama, it would be left with a seven-year production compound annual growth rate of only 5 per cent. "However, with a dearth of copper assets with low cash costs and in low geopolitical risk areas, an accretive transaction could be difficult, forcing Inmet to focus further on slower growth via the drillbit."

Downside: Noting that Inmet has outperformed peers in the past six months, Mr. Murphy downgraded the stock to "neutral" from "buy" and lowered his target price to $68.00 from $70 (Canadian).

Related: Bullish on Inmet Mining

Related: Inmet partner takes option for 20% of Cobre Panama

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Gluskin Sheff + Associates Inc. reported disappointing fiscal second-quarter results, with earnings before interest, taxes, depreciation and amortization falling 9 per cent from the first quarter and net asset withdrawals equating to 6 per cent of assets under management, noted CIBC World Markets Inc. analyst Paul Holden. Performance fees were down while operating expenses were up.

Downside: Mr. Holden cut his price target by $3.50 to $14 and maintained a "sector underperformer" rating.

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Telus Corp.'s fourth-quarter earnings per share were slightly below consensus forecasts, but unlike peers, its revenues rose, noted Canaccord Genuity analyst Dvai Ghose. Wireless results were particularly robust, with net additions of 148,000 easily beating his 120,000 forecast.

"Telus remains best positioned in the sector due to: 1) its leading wireless fundamentals, which we believe are sustainable; 2) its disproportionate exposure to less competitive wireless markets in the West; 3) the success of Optik and signs that wireline dilution has peaked; and 4) sector leading FCF and DPS growth potential," he wrote in a research note.

Upside: Mr. Ghose raised his price target by $4 to $66.

Related: Telus profit rises on TV, data growth

Related: Canada's newly competitive cellphone market at risk

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Bombardier Inc.'s regional aircraft business is showing further signs of momentum as Reuters reports that Indonesian airline Garuda is set to purchase 18 CRJ1000 aircraft at the Singapore Air Show this week. This suggests that Garuda is not the undisclosed customer for last Friday's order for up to 24 CRJ1000s, and therefore would be an additional sale, explains Desjardins analyst Benoit Poirier.

The aerospace company also announced Monday morning that an unidentified airline has signed a firm purchase agreement for five Q400s, worth approximately $160-million (U.S.). Though small in size, this transaction brings much-needed life to Bombardier's Q400 backlog, says Mr. Poirier.

Upside: Mr. Poirier is maintaining his "buy" rating and target price of $7.50 (Canadian).

Read More: Bombardier gets order for five regional jets

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Perpetual Energy Inc.'s improved balance sheet and growing liquids production have resulted in a ratings upgrade for the Calgary-based natural gas producer.

According to the company's update on its asset disposition program and growing liquids production, it expects to have executed $59-million in sales by mid-March, which will be key for the repayment of $75-million of debentures that mature in June, noted CIBC World Markets analyst Jeremy Kaliel.

Perpetual Energy also reported that oil and natural gas liquids production reached 3,325 barrels per day in January and is now expected to average over 3,500 barrels per day for the full-year 2012. "With asset sales shoring up its balance sheet and its liquids weighting increasing, we believe PMT deserves recognition as a going concern," says Mr. Kaliel.

Upside: He upgraded his rating to "sector outperformer" from "sector performer" and maintained his $1.50 (Canadian) price target.

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About the Authors
Streetwise editor

Jody White is the web editor for Streetwise. He previously worked as a senior editor at Canadian Business Online and has written for MoneySense Magazine, Maclean's, the National Post and other national publications. More

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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