BCP says Volcan shares overvalued

Wednesday, August 20, 2003

Peru's Banco de Credito (BCP) has maintained its "reduce" stock recommendation for local zinc miner Volcan's series B shares after the bank downgraded Volcan from "hold" in February this year.

BCP analysts consider Volcan shares overvalued at around 0.33 soles and set a target of 0.22, a downside of 32.0%.

The bank said its analysis was based on the company's worsening financial situation and its view that international zinc prices will not show a real recovery until the end of the year.

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BCP said a rally in the Volcan B share price of 60.3% in the second quarter of 2003 was mainly due to expectations of a new strategic partner joining forces with the cash-strapped company, formerly Peru's largest zinc producer.

Brazil's Paraibuna de Metais (part of the Votorantim group), Peru's tin miner Minsur and Swiss natural resource group Glencore have been involved in discussions with Volcan. Glencore's offer appears to be the "most attractive" but the final result of talks has not yet been made public, said BCP.

Volcan posted a loss US$8.1mn in the second quarter of 2003, compared to a loss of US$5.5mn in same-period last year. Revenue was down 5.6% year on year due to lower volumes sold and weaker zinc prices, said BCP.

Volcan operates the Yauli and Cerro de Pasco units in central Junin and Pasco departments respectively. It also has the Chungar unit in Pasco.