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Detour Gold's price target hiked by Dundee Capital on reduced risk profile

Last updated: 14:48 11 Feb 2015 GMT, First published: 15:48 11 Feb 2015 GMT

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Detour Gold (TSE:DGC) had its price target increased today by Dundee Capital Markets following the closing of a C$162 million bought deal offering that is expected to eliminate all short-term debt.

The closing, including the exercise of the over-allotment option, was announced yesterday, with Detour issuing 12.65 million shares at C$12.80 apiece.

"Given its modest size relative to DGC's market capitalization, the raise has a relatively immaterial impact on our NAV (declined <1%) while also significantly increasing DGC's near-term financial flexibility," wrote analyst Joseph Fazzini in a research note released to investors Wednesday. 

"We view the decision to reduce debt as a prudent initiative which alleviates the short-term debt overhang."

As a result of the reduced risk profile, Dundee increased its target multiple to 1.1x from 1.0x, which resulted in a new price target of C$16.50, compared to C$15.00 previously.

The brokerage, which maintained its buy rating, noted this represents a 40 percent return from the gold miner's current share price. 

At year-end, Detour Gold had cash and equivalents of US$135 million and estimated debt of US$624 million, for a net debt position of US$489 million. Pro-forma, Dundee said the equity raise reduces its net debt position to US$365 million.

The company is expected to use the proceeds from the offering to repay its financial lease facility and US$30 million revolving credit loan, leaving its November 2017 convertible debentures of US$500 million as its only debt outstanding.

"With a manageable interest rate of 5.5%, we remain comfortable with the company's ability to service this debt and manage the maturity of the convertible debentures," Dundee said.

Detour Gold owns 100 percent of the Detour Lake mine in northern Ontario, which has over 15.5 million gold ounces in reserves, and stands to become Canada's largest gold mine. The company is continuing to ramp up the mine and de-lever its balance sheet.

Shares were down 1.9 percent at C$11.39 in Toronto on Wednesday, extending losses to 4.4 percent year-to-date.

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