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Ivanhoe Mines is "most important" copper development company, Bernstein says


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Ivanhoe Mines is "most important" copper development company, Bernstein says

Sanford C. Bernstein sees massive upside potential in Ivanhoe Mines Ltd. due to its recent copper discovery in the Democratic Republic of the Congo.

"Ivanhoe is undoubtedly the most important company as regards the future development of copper," Bernstein analysts wrote in an Oct. 2 note.

Bernstein set a C$15.00 price target on the Toronto-listed stock, indicating upside potential of 445%.

The company's share price climbed recently after announcing the Makoko copper discovery at its early stage Western Foreland property, with the discovery drillhole returning 3.94 meters grading 5.46% copper from a depth of 306 meters.

The Western Foreland property is west of Ivanhoe's Kamoa-Kakula copper joint venture, which was valued at US$7.18 billion after taxes in late 2017.

"Clearly, predicting the success of any future exploration campaign is impossible," the analysts said. "But the latest news from Ivanhoe confirms a central plank of our investment thesis: that there is further upside on offer from the Western Foreland, that the copper belt remains open, and that Ivanhoe is almost uniquely positioned to take advantage of this fact."

"The Makoko announcement vindicates our belief in the ability of Ivanhoe to extend their copper holdings, and to do so at what are, in the end, negligible amounts of money allocated to exploration," the Bernstein team added.

However, Ivanhoe is facing major country risk as three of its assets are in Africa and 90% of its enterprise value comes from the DRC assets.

In the precious metals space, RBC Capital Markets introduced its American depositary receipt price targets for the South African precious producers in its coverage, including Gold Fields Ltd., AngloGold Ashanti Ltd. and Sibanye Gold Ltd.

RBC said in an Oct. 5 note that it made no changes to the ratings, forecasts or South African rand price targets and used an exchange rate of 14.5 rand per U.S. dollar.

Gold Fields has an "outperform" rating with an ADR target price of US$3.50. In rand terms, the stock's target price is 50 rand.

Perceived risks for Gold Fields' rating and price target comprise industrial unrest, CapEx overruns related to development, changes in gold price, changes in the fiscal or ownership regimes of its operations, and the strength of the company's operating currencies relative to the U.S. dollar.

With a "sector perform" rating, AngloGold Ashanti was given an ADR price target of US$9.00 per share. In rand terms, the price target is 130 rand. The company faces similar risks as Gold Fields, excluding the threat of industrial unrest and CapEx overruns at its development projects.

RBC tagged Sibanye Gold, which also has a "sector perform" rating, with an ADR target price of US$3.00 and a rand target price of 11 rand per share.

The miner's rating and price target could be negatively impacted by labor unrest, weak commodity prices or a stronger rand, and lack of improvements in its platinum group metals business.

"Threats of strikes at its gold mines remain and a strike would be negative for the shares, we believe," RBC wrote. "Similarly, strikes at its PGM operations would also be negative for sentiment."