pengrowth

TECK COMINCO LTD., $9.94, Toronto symbol TCK.B, has agreed to sell most of the gold from its Andacollo gold/copper mine in Chile to Royal Gold Inc. (Toronto symbol RGL). Teck owns 90% of Andacollo, and the Chilean government owns the remaining 10%. The mine should begin operating by the end of this year, and reach full production in mid-2010. Teck and the Chilean government will continue to own and operate the mine. Royal Gold is just buying the output. Royal Gold will pay a total of $300 million, consisting of $100 million in cash and $200 million in Royal Gold shares (all amounts except share price in U.S. dollars). Teck’s 90% share is equal to $270 million. To put this amount in context, Teck earned $1.7 billion (Canadian), in 2008. This is equal to $3.76 a share before writedowns and other one-time items....

Low oil and natural gas prices have prompted Pengrowth to lower production and cut its distributions. However, these moves put the trust in a strong position to quickly increase cash flow and distributions when prices rebound. As well, Pengrowth’s reasonable debt should let it take advantage of depressed energy prices by making acquisitions, probably at bargain prices. Pengrowth has been around since 1988, and is now one of the largest energy trusts in North America. It survived years of low oil prices in the 1990s, and should withstand this recent drop. As well, its high-quality reserves should last well over 10 years. PENGROWTH ENERGY TRUST $7.13 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 256.1 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.0; SI Rating: Average) is one of North America’s largest energy royalty trusts. It owns all or part of several oil and natural-gas properties in Alberta, British Columbia and Saskatchewan....

PENGROWTH ENERGY TRUST $7.13 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 256.1 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.0; SI Rating: Average) is one of North America’s largest energy royalty trusts. It owns all or part of several oil and natural-gas properties in Alberta, British Columbia and Saskatchewan. Properties that Pengrowth operates account for 63% of its production. The remaining 37% comes from minority investments in other energy projects, including an 8.4% interest in the Sable Offshore Energy Project south of Nova Scotia. Natural gas provides 60% of Pengrowth’s production. Oil supplies the remaining 40%. Pengrowth prefers to focus on proven properties with sizeable reserves and predictable production rates. It has interests in six of western Canada’s top nine oil-producing areas....

AGRIUM INC., $46.00, Toronto symbol AGU, may now mail its $67.75 cash-and-stock offer to buy U.S.-based fertilizer producer CF Industries Holdings Inc. (New York symbol CF), directly to CF’s shareholders, now that CF’s management has rejected it (all amounts except share price in U.S. dollars). CF’s stock is now trading at $68.61, which indicates that investors anticipate a higher bid. Agrium’s offer for CF is worth roughly $3.3 billion (56% of the offer is stock and 44% is cash). This is a big acquisition for Agrium, which earned $1.3 billion, or $8.34 a share, in 2008 However, CF has a shareholder-rights plan that lets shareholders buy new shares at half the market price if an investor tries to buy more than 15% of the outstanding shares without the approval of CF’s directors. This makes hostile takeovers like Agrium’s less likely to succeed....

PENGROWTH ENERGY TRUST $6.82 (Toronto symbol PGF.UN; Shares outstanding: 256.5 million; Market cap: $1.7 billion; SI Rating: Average) has cut its monthly distribution by 41.2%, to $0.10 a unit from $0.17. The cut will let it conserve cash until oil and natural gas prices rebound. Despite the reduction, the new annual rate of $1.20 still yields a high 17.6%. The lower payout will also free up cash, which Pengrowth may use to buy new oil and gas properties, possibly at bargain prices. It will also let Pengrowth finance this year’s drilling and exploration, and fund ongoing maintenance, without increasing its $1.3-billion long-term debt, which is a high, but still manageable, 72% of Pengrowth’s market cap. Pengrowth is a buy.

NOVA CHEMICALS CORP., $7.03, Toronto symbol NCX, has accepted a friendly takeover offer from International Petroleum Investment Co., which is owned by the government of Abu Dhabi (Abu Dhabi is the capital city of the United Arab Emirates.) Nova shareholders will get $6.00 U.S. a share in cash, or 359.9% more than Nova’s closing price of $1.66 (Canadian) on Friday, February 20, 2009, the last trading day before the takeover was announced. Two-thirds of Nova’s shareholders, and Canadian and U.S. competition regulators, need to approve the deal. The plastics and chemicals company should have little trouble getting these approvals. The slowing economy has hurt demand for Nova’s industrial plastics, and it was dangerously close to breaching the covenants of its lending agreements earlier this month. If Nova didn’t agree to the takeover, its lenders could have demanded that it repay all of its loans immediately. Nova’s total debt at the end of 2008 was $1.7 billion (all amounts except share price in U.S. dollars), or roughly four times its current market cap. This includes $380 million due in 2009. As of December 31, 2008, it held $74 million, or $0.89 a share, in cash....

IMPERIAL OIL LTD. $39 (Toronto symbol IMO) plans to increase capital spending by 60% in 2009. Most of the extra spending is for its proposed Kearl Lake oil-sands project in northern Alberta. Imperial owns 70% of Kearl, while parent company ExxonMobil Corp. owns the rest. Kearl’s reserves should last 40 years, and moving ahead with it makes sense for Imperial despite low oil prices, as the economic downturn has cut the cost of labour and materials. Best Buy. ANDREW PELLER LTD. $7.40 (Toronto symbol ADW.A) reported that sales in its third fiscal quarter, ended December 31, 2008, rose 10.4%, to $72.9 million from $66.1 million a year earlier. The gain was largely due to acquisitions, new products and strong demand for its premium wine brands. The company lost $0.13 a share, compared to a profit of $0.35 a share in the year-earlier quarter. If you disregard unusual items, earnings would have increased 1.6%. Buy. PENGROWTH ENERGY TRUST $10 (Toronto symbol PGF.UN) recently cut its monthly distributions by 24% to conserve cash in light of low oil and natural gas prices. However, it plans to spend 47% less on capital projects in 2009, which should help it maintain the current payout rate. Buy.

Many of our recommendations have dropped sharply in the past few months, along with the overall market. Here are 10 stocks that we feel have strong rebound potential in 2009. CANADIAN IMPERIAL BANK OF COMMERCE $49 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 380.8 million; Market cap: $18.7 billion; Price-to-sales ratio: 1.5; SI Rating: Above average) is down 37.6% from its recent peak of $78.48 in May, 2008. That’s mainly because it has the most exposure to the problems in the U.S. mortgage market among the big five Canadian banks. CIBC has taken substantial writedowns in the past year, which should cover most of the damage. It also continues to expand its retail banking operations, as well as scale back its riskier operations. CIBC is a buy....

PRECISION DRILLING TRUST $8.81, Toronto symbol PD.UN, has completed its acquisition of U.S.-based contract driller Grey Wolf Inc. The trust paid roughly $1.15 billion in cash and $250 million in new units for Grey Wolf. Precision finalized the terms of the Grey Wolf takeover in August, 2008. Since then, the price of Precision’s units has dropped 60%, mostly due to a 70% drop in oil prices, from $120 U.S. a barrel to $40 U.S. The drop in oil and natural gas prices prompted many producers to cut spending on new exploration in 2009, which hurts Precision’s profit outlook. Precision’s market cap is now just $1.1 billion, which is 21% below the $1.4 billion that it paid for Grey Wolf. Precision also needed to arrange $1.6 billion U.S. in new credit facilities to buy Grey Wolf. That greatly increased its long-term debt, which was $231.8 million (Canadian) at September 30, 2008. To help free up cash for debt repayments, Precision has now cut its monthly cash distributions by 69.2%, from $0.13 a unit to $0.04. The new annual rate of $0.48 yields 5.4%....

PENGROWTH ENERGY TRUST $9.90 (Toronto symbol PGF.UN; Shares outstanding: 255.66 million; Market cap: $2.7 billion; SI Rating: Average) produces oil and gas in western Canada, as well as offshore Nova Scotia. Production is weighted 49% toward oil and liquids and 51% natural gas. Pengrowth’s debt stands at 50% of market cap. To conserve cash in the face of lower oil and gas prices, Pengrowth cut its quarterly distribution with the January, 2009 payment by 24.5%, to $0.17 from $0.225. The units now yield 20.6%. Pengrowth now trades at 3.9 times its estimated 2009 cash flow of $2.55 a share....