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Lima-based Banco de Credito (BCP) has modified its recommendation for local zinc miner Volcan's B series shares from "hold" to "reduce."
The recommendation takes into account the little likelihood of a major recovery in zinc prices in the short term and the absence to date of a strategic partner or injection of capital into the company, "indispensable requirements for its future performance," the bank's analysts wrote in a report.
The bank's capital markets division said that Volcan B shares had an upside potential of only 0.1% and set a target price of 0.16 Peruvian soles (US$0.05) a piece. Volcan B shares were trading at 0.17 soles on Wednesday.
The report added that important steps toward finding a strategic partner -a current objective of the company- would lead to an increase in the share price, which could provide an opportunity for speculative investors.
Volcan reported a net loss of US$11.6mn in 2002, worse than a loss of US$10.0mn in 2001, as a result of the continual drop in zinc prices (-21.5% YoY) and a fall in production of 8.1% last year to 309,712t.
The bank also reported it had dropped its forecast for average zinc prices in 2003 from US$850/t to US$820/t. So far this year, average zinc prices have increased by 0.3% to US$781/t, according to Banco de Credito analysts.