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Dundee Precious Metals Initiated At 'Sector Outperformer' By CIBC, C$12.50 PT

 December 03, 2012 02:38 PM


(By Balaseshan) CIBC World Markets Inc. analyst Leon Esterhuizen initiated coverage of Dundee Precious Metals Inc. (TSE: DPM) with a "sector outperformer" rating and C$12.50 price target.

The analyst said Dundee has a stable operating base at the lower end of the global cost curve and generates strong cash flows that will go a long way towards funding its growth plans. The next five years should see strong production growth at low costs - delivering increased margins and free cash flows.

Esterhuizen said Dundee has a strong balance sheet and there is sufficient flexibility in its capital expenditure program to mitigate the impact of possible lower commodity prices. He does not expect the company to require external financing in the near term.

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The analyst normally values the TSX-listed gold producers at 2013 price-to-cash flow ratio (P/CF) multiples of 3 to 11 times. Given its strong balance sheet and growth potential, he values Dundee using a 9 times P/CF multiple for a C$12.50 price target. This delivers an implied return of 51%.

The brokerage established its 2012 EPS estimate for Dundee of $0.60 and its 2013 estimate of $1.03.

DPM is trading up 1.31% at C$8.50 on Monday.

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