Wednesday, September 8, 2010

UBS (NYSE:UBS) Raises Goldcorp (NYSE:GG) Price Target on Andean (TSE:AND) Acquisition

UBS (NYSE:UBS) kept its "Buy" rating on Goldcorp (NYSE:GG), but raised its price target on the company to $56 a share, an increase of $2.50, on the assumption they'll end up with Andean Resources (TSE:AND).

In a note to clients, UBS said, "We estimate that with its free cash flow under UBS assumptions and proceeds from recent asset sales, Goldcorp can easily fund the Andean transaction and the capital expenditures required for Cerro Negro without any impact on the funding for its current project pipeline."

It is believed that Cerro Negro's reserves are double what they're estimated at now, and that will add to the size of Goldcorp, even as large as it is.

"We believe there is a good opportunity to increase both Cerro Negro's reserves and its production profile. We are assuming both a doubling of production and reserves/resources and an increase in capital expenditures in our estimates. Based on these assumptions, our NAV per share for Goldcorp increases from $35.18 to $36.54," added UBS.

"Applying a P/NAV multiple of 1.55x to the gold component of our gold NAV of $35.76/share (using US$1250/oz gold) and adding non-gold assets of $0.78/share, we derive our target of $56. Based on the implied return, we maintain our Buy rating."

As usual, there have been rumors of other bidders, but there are few in the industry that could compete head-to-head with Goldcorp, and if they did, the value of Cerro Negro could be diluted to the point of irrelevance.

So the thought is more than likely Goldcorp will get the company without another bid.

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