Citi is the latest to join a spate of analysts upgrading Teck Resources Ltd. stock recently, based on significantly improved outlooks for the price of metallurgical coal in 2017.
Citi upgraded shares in the Vancouver-based miner Monday to buy from neutral and raised its target price from $30 to $40. Its shares were trading up 2.5 per cent at $34.47 at midday Monday on the Toronto Stock Exchange. Citi also raised its free cash flow projection to 22 per cent if spot prices can hold out longer than expected.
Prices of met coal — one of Teck’s most significant resources — have risen about 160 per cent this year, largely due to supply shortages in China, which is also one the biggest customers for the coal used in steel-making.
The bank’s commodities group also raised its price forecast for coking coal by 58 per cent to US$211 per ton. It also raised forecasts for copper and zinc. “Teck is entering a cash flow ‘harvesting’ mode, with investment spending to complete Fort Hills rolling off in 2017,” the report said.
“We expect the company to de-lever, return capital and plan the next significant opportunity.” Fort Hills is Teck’s oilsands joint venture with Suncor and Total E&P. Teck owns a 20 per cent interest.
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