UBS updates near-term commodity prices

The acceleration of capital outflow from emerging markets and tighter liquidity as stimulus ends from the U.S. Federal Reserve and the European Central Bank, a “rebalancing” in China where policymakers are not actively stimulating private construction and infrastructure, and the risk of a cyclical slowdown in the United States that may bring on renewed credit stress will combine to put pressure on near-term commodity prices, UBS Investment Research concludes in a new report.

Analysts Brian MacArthur, Chris Lichtenheldt and Matt Murphy have slashed their gold price forecast for 2012 to US$1,679 per oz., down 18% from their earlier estimate of US$2,050 per oz. Forecasts for 2013, 2014, 2015 and 2016 all remain unchanged from earlier estimates but are mostly below consensus at US$1,725 per oz. (-5%), US$1,400 per oz. (-10%), US$1,300 per oz. (-6%) and US$1,250 per oz. (+1%) , respectively.

For silver, the UBS analysts are calling for US$33.40 per oz. in 2012, a decrease of 4% from their earlier estimate of US$35.00 per oz. In 2013 they forecast silver remains the same as earlier estimates at US$27.50 per oz., and in 2014 the silver price will average US$25.00 per oz., up 25% from their earlier estimate of US$20.00 per oz. In 2015 the silver price will rise 16% from their earlier forecast to US$20.00 per oz. from US$17.30 per oz., and in 2016 it remains unchanged at US$15.50 per oz.

The lower price forecasts for precious metals with the exception of silver in 2014 and 2015 have led the UBS analysts to revisie near-term earnings per share (EPS) estimates for a number of companies and therein target prices for their stock.

The report offers 12-month target prices on the shares of sixteen precious metal companies and their variance from the analysts’ previous estimates. Their twelve-month target price for Agnico-Eagle Mines (AEM-T, AEM-N) is US$43 per share (-10%); Barrick Gold (ABX-T, ABX-N) US$59 per share (-8%); Centerra Gold (CG-T) $20 (-13%); Goldcorp (G-T, GG-N) US$60 (16%); Kinross Gold (K-T, KGC-N) US$13.00 (-13%); Newmont Mining (NMC-T, NEM-N) US$77.00 (-9%); Coeur d’Alene (CDM-T, CDM-N) US$28.25 (-17%); First Majestic (FR-T, AG-N) $18.75 (-6%); Fresnillo (FRES-L) £16.50 (-3%); Hecla Mining (HL-N) US$6.85 (-9%); Pan American Silver (PAA.T-T, PAAS-Q) US$25.50 (-15%); Silvercorp Metals (SVM-T, SVM-N) US$8.50 (0%); Silver Standard (SSO-T, SSRI-Q) US$20.50 (-6%); Silver Wheaton (SLW-T, SLW-N) US$42.00 (-5%); Franco-Nevada (FNV-T, FNV-N) $46.50 (-2%); and Royal Gold (RGL-T, RGLD-Q) US$77.00 (-3%).

In terms of base metals, UBS forecasts lower prices for nickel and uranium. Nickel prices in 2012 will fall 7% from their earlier estimate to US$8.37 per lb. and drop 9% to US$8.55 per lb. in 2013. Uranium prices will slide 5% from earlier estimates to US$52.00 per lb. in 2012, fall 13% to US$52.00 per lb. in 2013, and drop 15% to US$55.00 per lb.

The analysts’ twelve-month price targets on the stock of base metal companies remained largely unchanged, with First Quantum Minerals (FM-T, FQM-L) at $23.00 (0%); Freeport-McRoRan Copper & Gold (FCX-N) US$50.00 (-3.8%); HudBay Minerals (HBM-T, HBM-N) $14.50 (0%); Inmet Mining (IMN-T, IEMF-O) $68.00 (0%); Katanga Mining (KAT-T) $1.10 (0%); Lundin Mining (LUN-T) $5.00 (0%); Thompson Creek Metals (TCM-T, TC-N) $8.50 (0%); Royal Nickel (RNX-T) $1.50 (0%); Mirabela Nickel (MNB-T) $2.00 (0%); Sherritt International (S-T) $6.50 (0%); Alcoa (AA-N) US$11.25 (0%); Eastern Platinum (ELR-T) $1.20 (0%); Noranda Aluminum (NOR-N) $13.50 (0%); Teck Resources (TCKb.T, TCK-N) $50.00 (0%); Uranium One (UUU-T) $4.00 (-5.9%); and Cameco Corp. (CCO-T, CCJ-N) $27.50 (-1.8%).