Analysts raise target prices on Teck after investor day

The company also declined to comment on news reports that it was considering divesting its coal assets and pointed to the demand for high-quality coking coal and high prices.

CIBC’s Bryce Adams has raised his 12 to 18-month price target for the company from C $ 34 to C $ 35.50 per share. “With the demand for copper in the decarbonization categories which is expected to grow at [a] 26% CAGR [compound annual growth rate] until 2030, Teck can double its copper production by 2023 “with its QB2 project, Adams commented in a research note, adding that the company said it had completed about 60% of the project in August.” beyond QB2, ”Adams added,“ copper growth is most likely coming from the Zafranal and San Nicolas projects ”.

The Zafranal copper-gold project, 80% owned by Teck, is located in southern Peru, approximately 70 km north of Arequipa, and its wholly-owned San Nicolas copper-zinc project is in Zacatecas State, Mexico. Both projects could be put online as early as mid-2026.

“Longer term, Teck continues to view its coal business positively, as blast furnaces are expected to remain the preferred method of steel production in Asia for the next 20 years. “

Dalton Baretto of Canaccord Genuity has raised his price target for Teck from C $ 28 per share to C $ 31 per share. “Regarding growth options, Teck stressed its preference for copper and its pipeline of copper projects, but said it was also evaluating other ‘green metals’ such as uranium, lithium or nickel, ”Baretto wrote in a note to customers.

Regarding its coal business and recent speculation from Bloomberg and other media that the company is considering selling the business, “Teck would not comment other than to reiterate that they continue to assess potential divestment options, ”noted Baretto.

“Given that the price of coal is $ 399 per ton FOB DBCT or $ 566 / t CFR China today (compared to $ 111 / t and $ 226 / t, respectively, on May 1st), the coal market encountered was a key area of ​​interest, ”said Baretto. “Management has indicated that the global market is structurally short; Global steel production has increased by 125 million tonnes since the start of the year while global coking coal production has declined by 17 million tonnes (mainly due to the Covid-19 issues in Mongolia). Coal flows rebalanced after China’s 2020 ban on Australian coal, with India, Japan and Southeast Asia absorbing the surplus. The Chinese market is under-supplied by 13-20 million tonnes, even as domestic production has increased by 9 million tonnes despite strict regulatory controls, with Mongolian production declining by a similar amount.

While Baretto says he believes the coal prices achieved are “likely to moderate over the next few months,” he has, due to the current tight market, increased his estimate of the FOB benchmark price for the fourth quarter to $ 250 / t against $ 150 / t, and its estimate for the first half of 2022 at $ 150 / t against $ 135 / t.

“Over the longer term, Teck continues to view its coal business favorably, as blast furnaces are expected to remain the preferred steel production method in Asia for the next 20 years and the high coking resistance of Teck’s products allows for relatively lower carbon footprint in the steelmaking process, ”commented Baretto. “Having said that, we believe that management and the board are well aware of the progress the company has made on share price multiples.”

While Baretto increased his target price on Teck due to his forecast for higher coal prices being achieved and the resulting “cash flow generation”, he also maintained his “Hold” rating on the stock. taking into account the limited implied return and the risk of a fall in the price of coal reached. “

Brian MacArthur of Raymond James increased his target price on Teck from C $ 37 per share to C $ 39 per share, noting that the company “has good exposure to coal, copper and zinc, and is able to convert the EBITDA [earnings before interest, taxes, depreciation and amortization] of its Canadian operations in an efficient manner given its large Canadian tax bases.

In terms of copper, “QB2 is expected to double Teck’s consolidated copper production (highest copper growth among its peers) while significantly changing Teck’s product line,” he said. “Given the large QB resource, there is also the possibility of QB3, which could potentially provide more copper growth later in the decade.”

As for coal, “in the past Teck has restructured its portfolio assuming a ‘fair price’ for coal assets, we think Teck would consider that,” MacArthur wrote in a research note. “However, if Teck were to divest coal in the short term, given the high coal prices, we note that this would have a significant impact on EBITDA (a change in the price of coal of $ 50 / ta impacts the Annual EBITDA of approximately C $ 1.5 billion).

Teck did not provide any update on this potential divestiture, but stressed that high quality coking coal is still required for the low carbon transition in steelmaking and without entirely new projects. and industrialists, there could be a deficit after 2025. “

Jackie Przybylowski of BMO Capital Markets raised its target price on Teck to C $ 44 per share from C $ 40 per share and upgraded the company’s rating to an outperformance rating of Market Perform on high coal prices and a “solid strategy”.

“The important QB2 project is progressing as planned, investments in technology are showing significant benefits and cash flows are strong (especially in the case of sustained spot prices for copper and coal),” the analyst wrote in a research note.

(This article first appeared in The Northern Miner)

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