http://seekingalpha.com/article/1270...
Teck Cominco Gets Good News on Coal
by: FP Trading Desk March 20, 2009 | about stocks:
TCK
As a global leader in the production of hard coking coal, Teck Cominco Ltd. (
TCK) could naturally use higher prices to help it overcome its liquidity issues.
News of a deal that Australian producers may have settled metallurgical coal prices at $130 per tonne is therefore being viewed as a positive development for Teck, as it should reduce uncertainty regarding cash flows and make potential asset sales easier.
The Vancouver-based miner could settle its own contracts at a 10% discount, or $120 per tonne, according to H. Fraser Phillips at RBC Capital Markets. The analyst is assuming Teck sells coal at this price starting on April 1 and gets $190 for coal sold in the first quarter of 2009 (in line with company guidance). He forecasts that Elk Valley sells 20 million tonnes in 2009.
Mr. Phillips also expects Teck to receive tax refunds of $870-million in 2009, $790-million of which has already arrived. The company’s bridge loan stood at $6.436-billion at the end of 2009, while it had $1.4-billion in cash as of Feb. 16, 2009.
This analysis yields a financing shortfall of $5.5-billion as of Oct. 31, 2009 – when Teck’s bridge loan comes due, Mr. Phillips told clients.
He said:
Our estimated $5.5-billion shortfall will likely be made up by a combination of asset sales, high yield debt, an extension of the bridge loan and perhaps an equity issue. We continue to see value here and believe the liquidity issues can ultimately be overcome.
So while the analyst feels these higher coal prices will serve to reduce uncertainty around Teck’s 2009 and 2010 operating cash flows, and allow the company to advance a possible sale of an interest in Elk Valley, he insists the situation remains speculative.
RBC rates Teck shares at “outperform” with a C$15 price target, which equates to more than 150% of upside.
