Kinross Gold

Darcy Keith
RTGAM



As gold bugs celebrate the breathtaking record-setting run in the commodity this summer, shareholders in Kinross are left grumbling once again. Despite bullion gaining almost $300 (U.S.) an ounce since June, Kinross Gold Corp. shares have been largely treading water, currently trading only modestly above their 52-week low of $13.53.

Long-suffering investors received some good news last Wednesday as the company reported a better-than-expected second quarter and announced a boost in its semi-annual dividend. But after a brief rally on the news, the stock is back down to about where it was trading a week ago.

The Street is concerned with the increased capital costs Kinross is facing as it prepares to advance several projects to the production phase over the next few years and make good of several recent big-ticket acquisitions. Its key Tasiast project in Mauritania, for instance, is now expected to cost $1-billion more to develop, the company disclosed last week.

National Bank Financial analyst Paolo Lostritto, however, believes the higher future capital expenditures will be worth it - and suggests shareholders will eventually reap the benefit. He upgraded Kinross to "outperform" from "sector perform" today, forecasting a total return to shareholders approaching 30 per cent over the next 12 months.

"Despite an increased capital cost intensity over the next two to three years, we believe the production growth and cash flow per share growth justify the investment," Mr. Lostritto wrote in a research note.

CIBC World Markets Inc. analyst Barry Cooper notes that while reserves are building at Tasiast, estimated grades have been falling. "With capex on the rise and operating costs now pressured from both inflation and lower grades, valuations for the project are falling."

But he also believes that Kinross shares have already established a floor, and notes that the stock is trading well below Goldcorp Inc. , which has a similar production and cost profile. He thinks production could exceed guidance in the second half of the year, and when Tasiast eventually starts up, its output may be higher than projected providing that heap leach and satellite discoveries are incorporated.

Upside: Mr. Lostritto raised his price target by $3 to $20 (Cdn). Mr. Cooper maintained a $20 (U.S.) price target.

The outlook for Manulife Financial Corp.'s third quarter is "poor" because of the recent slide in equity markets and interest rates, warned RBC Dominion Securities Inc. analyst Andre-Philippe Hardy. He expects a per-share loss of 32 cents in the quarter, but notes the company's reduced exposure to movements in equity markets and interest rates makes the stock attractive for the longer term after some "near-term pain."

Downside: Mr. Hardy cut his price target by $2 to $17 and maintained an "outperform" rating.

The increasing macro economic headwinds favours Sprott Inc.'s bearish investment stance and could help boost the asset management company's net sales, said RBC Dominion Securities Inc. analyst Geoffrey Kwan. "Furthermore, we believe Sprott is a more diversified asset manager with multiple platforms to drive future growth and has greater growth opportunities relative to peers," he said.

Upside: Mr. Kwan upgraded Sprott to "outperform" while raising his 12-month price target by $1.50 to $11.

Ag Growth International Inc. reported a disappointing second quarter, partly because of the delayed start up of a new bin production plant and strength in the Canadian dollar, noted TD Newcrest's Damir Gunja. "Though our growth thesis for fiscal 2012 and beyond remains intact, we have tempered our expectations somewhat, given operational challenges related to the company's new bin line in addition to persistent weather-related issues in parts of Canada, the analyst commented.

Downside: TD cut its price target by $8 to $51 but reiterated a "buy" rating.

Canadian National Railway Co. shares have staged a noteworthy pullback in recent weeks in response to global macroeconomic concerns. But Raymond James Ltd. analyst Steve Hansen notes that the railway's most recent carload traffic reveals no definitive signs of a slowdown. Given Raymond James view that the world is not going to suffer double-dip recession, Mr. Hansen believes this is a good time to load up on the stock.

Upside: Mr. Hansen upgraded CN to "outperform" from "market perform" while maintaining a six- to 12-month price target of $81.