Coking coal markets have deteriorated so rapidly in recent weeks that Canaccord Genuity analyst Orest Wowkodaw is concerned that Teck Resources Ltd. may issue a profit warning ahead of its third-quarter results in late October.
He downgraded his rating on Teck today to a “hold” from a “buy,” as well as trimming his price target.
Spot coking coal prices have fallen precipitously in recent weeks, reflecting weak demand from the steel industry. Spot prices for top-quality hard coking coal have declined from $226 (U.S.) per ton in late June to a current price of $141, a plunge of about 38 per cent.
Meanwhile, a benchmark price for top quality coking coal has reportedly been settled at $179 per ton for the fourth quarter of this year, a drop of 24.4 per cent from the third quarter. “If spot prices remain at current levels or slip further, the Q1/13 benchmark settlement is likely to also move lower,” Mr. Wowkodaw commented.
Mr. Wowkodaw reduced his assumptions for prices that Teck will realize on its coal production, as well as his estimates on sales volumes through 2013, believing that some customers will defer deliveries due to weak market conditions.
He also pushed back by two years, to 2020, his expectation for when the Relincho copper project in Chile will start-up. Given the weak market conditions, he now thinks Teck will wait until the second phase of its massive Quebrada Blanca project in Chile is wrapped up before beginning development on Relincho.
On the bright side, Mr. Wowkodaw believes Teck will be able to weather the storm and the weak coal market conditions shouldn’t last all that long.
“While lower prices and our anticipation of lower volumes should both be negative for Teck, we believe the company remains well positioned in the market given its low cost base. Unlike late 2008/early 2009, Teck’s balance sheet is in great shape with very little near term debt maturities on the horizon, so we believe the company should have no trouble riding out the current market turbulence," he said in a note.
“Given the cost structure of the industry, we anticipate production closures and/or a rebound in coking coal prices within the next few months. However, in our view, Teck shares already reflect this scenario.”
Upside: Mr. Wowkodaw cut his target price by $2 to $37 (Canadian).
With the recently announced partnership with Discover Financial Services, over 95 per cent of all retail locations in the U.S. will be able to take EBay’s PayPal as a payment method starting in mid-2013, noted RBC Dominion Securities analyst Sun-Il Kim. “This gives PayPal a solid foundation to grow its offline business from essentially zero today,” he commented.
Upside: Mr. Kim raised his price target by $10 to $57 and maintained an “outperform” rating.
Copper Mountain Mining Corp. has formally lowered its 2012 copper production guidance by 29 per cent to 60 million pounds. While this is lower than Laurentian Bank Securities analyst Christopher Chang had anticipated, he is encouraged by improving operations at its namesake mine in British Columbia after a mill maintenance shutdown in early August. “We believe the company’s revised full-year copper production ... could be conservative given the significant mill operating improvements,” he said.
Upside: Mr. Chang cut his price target by 15 cents to $5.60 a share but maintained a “buy” rating.
The Brazilian government intends to reduce power costs by 16 per cent to 28 per cent, a change that may impact some power producers in the country, noted CIBC World Markets analyst Ian Tharp. Brookfield Renewable Energy Partners has 13 per cent of its capacity in Brazil, with more under development. Mr. Tharp said Brookfield’s facilities “appear to have avoided these changes, although we now expect additional challenges to be faced during the fund’s re-contracting efforts in the country,” he said.
Upside: Mr. Tharp cut his price target by 50 cents to $29 and reiterated a “sector performer” rating.
Paladin Labs Inc. is “not your typical pharma,” commented National Bank Financial analyst Leon Aghazarian. Given the company’s “very solid track record” of generating record revenue and EBITDA from the acquisition or licensing of sales and marketing rights to pharmaceutical products, “we like the search-acquire-commercialize strategy that grows an already extensive portfolio in the context of a mature Canadian market and competition from generics.”
Upside: Mr. Aghazarian initiated coverage with an “outperform” rating and $51 price target.