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Sunshine Oilsands Initiated As 'Sector Outperformer - Speculative' By CIBC

 December 18, 2012 10:25 AM

(By Balachander) Sunshine Oilsands Ltd. (TSX: SUO) shares were initiated with a "Sector Outperformer - Speculative" rating and price target of $0.57 by CIBC World Markets Inc.

The brokerage said Sunshine is a pure-play in-situ oil sands company with over 461,000 hectares of oil sands leases (7 percent of all granted leases in the Athabasca Fairway) and 5.4 billion barrels of recoverable resource (over 4 billion barrels of clastics and 1.3 billion barrels of carbonates).

The company is currently constructing its first 10,000 Bbls/d project at West Ells (mid-2013 first steam) and expects to have another 20,000 Bbls/d approved by mid-2013, CIBC said and added management has laid out a road map of how it plans to become a 160,000 Bbls/d+ producer by 2020.

[Related -Long-term Relationships and Credit Scores]

"A JV is key to unlocking value," CIBC wrote in a note. "Sunshine is an attractive JV candidate given it is one of the last few large resource holders willing to do a deal."

The brokerage said it would expect a JV to be significantly accretive to the stock's current valuation of $0.19/Bbl while also providing most required growth financing.

CIBC said the price target is nearly a 15 percent discount to its risked NAV, to account for the possibility of a JV not being signed, forcing the company to close its forecasted funding gap with equity.

On Tuesday, shares fell 1.45 percent to trade at $0.340 on the Toronto Stock Exchange.

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