Some miners have lost a third to a half of their share value since the beginning of the year. Capstone Mining Corporation's Minto Mine is pictured in Minto, Yukon August 21, 2012. REUTERS/Chris Wattie (CANADA - Tags: POLITICS ENERGY BUSINESS)CHRIS WATTIE/Reuters
Dundee Securities has a new top stock pick in both the energy and mining sectors.
International oil and gas producer TransGlobe Energy Corp., which primarily has operations in Egypt, now joins nine other stocks Dundee considers as its favourite investing ideas in energy. And Capstone Mining Corp., a growing copper producer, is now among eight stocks in that sector it recommends most strongly.
Dundee analyst David Dudlyke is bullish on TransGlobe Energy given its promising exploration and development projects, augmented by a well-diversified multi-year drilling inventory, which should allow continued growth of production and cashflow.
The company recently acquired rights to four additional exploration blocks that have doubled its net acreage position in Egypt. "The late 2013 ratification of the NW Gharib, SW Gharib, SE Gharib and South Ghazalat concessions marked a key milestone, perhaps even a watershed, for the company," Mr. Dudlyke said in a research note.
"Furthermore, management believes, based on peripheral well and seismic data, that the play concepts encountered at West Gharib/West Bakr extend onto the NW Gharib block and trend south across the SW and SE Gharib blocks. We therefore expect that the success delivered at both West Gharib and West Bakr can be replicated on the adjoining/on-trend acreage."
TransGlobe, thanks to its strong financial position, expects to fully fund its future capital programs and return cash to shareholders. The company intends to soon offer a dividend of 5 cents per share every quarter.
TransGlobe Energy looks inexpensive versus peers, says Mr. Dudlyke. Its stock trades 2.8 times 2015 debt-adjusted cash flow, while peers are at 3.1 times. "We believe a premium is merited," he said.
Mr. Dudlyke has a $12.70 (Canadian) price target on the stock. Canaccord Genuity earlier this month also added TransGlobe Energy to its "Canadian Focus List" - its top investing ideas.
Meanwhle, Dundee Securities is feeling increasingly upbeat about Capstone Mining after it acquired the Pinto Valley copper mining operation from BHP Billiton last year.
"Pinto Valley is a great asset which makes CS a real contender in the mid-tier space," said Dundee analyst Joseph Gallucci. "The project has a solid work force of experienced workers with history at the property. Even in a scenario where CS doesn't expand Pinto Valley beyond 12 years, the asset should still be viewed as a great purchase. We would be buyers of CS, as we see a lot of operational upside on cost savings and other improvements like marketing the concentrate locally."
Future copper growth could come from the Santo Domingo project in Chile, which the company co-owns with Korea Resources Corp. Construction of that project could begin as early as 2005. In the meantime, Capstone is benefiting from steady production at its two existing operations: Cozamin in Mexico and Minto in the Yukon.
"Capstone is well positioned to lever up off a solid incremental copper production increase from Pinto Valley with minimal development risk," Mr. Gallucci said.
He also thinks the stock looks attractive from a valuation standpoint. Its enterprise value is currently trading at 5.2 times 2014 earnings before interest, taxes, depreciation and amortization - while peers are at 6.3 times. Looking at another metric, the stock is trading at 0.56 times net asset value, below the sector at 0.65 times.
"We believe that the discount is unwarranted given the company's steady operating history, solid growth profile and low development risk," he said.
Mr. Gallucci has a $4.40 (Canadian) stock target.
Dundee's other top energy picks are Raging River Exploration Inc., Tamarack Valley Energy Ltd., Yangarra Resources Ltd., Bellatrix Exploration Ltd., Whitecap Resources Inc., Surge Energy Inc., Africa Oil Corp., Parex Resources Inc. and Bankers Petroleum Ltd.
Its other mining top picks are B2Gold Corp., Fortuna Silver Mines Inc., Lundin Mining Corp., Trevali Mining Corp., Ur-Energy Inc., Alderon Iron Ore Corp., and RB Energy Inc.
If you want to read more on what Dundee has to say on all these stocks, click here to see its full research note.