On Tuesday, BMO Capital Markets analysts Brian Quast and Ryan Thompson downgraded DETOUR GOLD CORP (OTC: DRGDF) (TSE: DGC) from Outperform to Market Perform.
In a separate report, the experts also downgraded ALACER GOLD CORP (OTC: ALIAF) (TSE: ASR) from Market Perform to Underperform.
Shares of both companies are down more than 3.4 percent on Wednesday trading.
In a recent report, analysts at BMO introduced a few changes to their main input assumptions. Among these modifications was the lowering of their long-term gold price forecast to $1,200/oz, from a previous $1,250/oz.
As a result, many target prices for gold equities were trimmed. However, posterior changes in foreign exchange assumptions (especially for the Turkish Lira) “have offset the change in the gold price estimate to some degree,” the note explained.
Detour Gold
Despite the changes in estimates, the target price for Detour Gold remained unchanged at C$16.00, since changes in the firm’s forecast for C$ exchange rate almost fully offset the reduction of the long-term gold price.
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The analysts noted that the company “has had an exceptional run this year, spurred by notable operation improvements as well as cleaning up the balance sheet.”
BMO still thinks Detour Gold is one of the best ways to play the falling C$. Nonetheless, at current valuations, the stock does not look compelling enough for the firm to continue to rate the stock an Outperform.
Key catalysts include the release of third-quarter production results, but more significantly, “a revised LOM plan for Detour Lake is expected in early 2016, and this will incorporate several value-enhancing projects, such as Block A and the segregation of fines project, amongst others.”
Alacer Gold
On the other hand, the changes in estimates led Quast and Thompson to raise the target price for Alacer Gold to C$3.00 from C$2.75, mainly on the back of the new Turkish Lira exchange rate assumptions.
The shares have proven resilient over the year, mainly driven by “solid operational performance,” the experts assured. The firm still sees Alacer as a “strong operator,” but, once again, the current valuation doesn’t make the stock attractive enough to maintain a Market Perform rating.
The report continued to expound, “The Çöpler Gold Mine, at least for the oxides is a high-grade, low-cost heap leach mine, albeit for a relatively short amount of time. The sulphide project, which has experienced stellar resource reconciliation to date in terms of sulphide feed will also be a relatively low-cost operation starting in the next few years.
“That being said, ASR garners one of our highest single asset multiples for a project that is yet to be proven and has some technological complexity.” This last point was crucial in the decision to downgrade the stock despite having increased the price target.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
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